Budget 2014 – Annual investment allowance

Over the last few years there have been a number of changes to the limit of the annual investment allowance (AIA), which provides businesses with a 100% deduction for expenditure on qualifying capital expenditure. The last of these changes was to increase the AIA temporarily from £25,000 to £250,000 for the period 1 January 2013 to 31 December 2014. Further changes have now been announced.

With effect from 1 April 2014 for corporation tax and 6 April 2014 for income tax, the AIA will increase to £500,000 and will apply to expenditure incurred up until 31 December 2015 when it will return to £25,000.

For businesses with chargeable periods spanning the operative date of the increase to £500,000 and the date of reversion back to £25,000, transitional rules will apply.

Businesses investing in significant amounts of qualifying plant and machinery will benefit from the uplift in the AIA. As in recent years, businesses with chargeable periods spanning the changes in rates will need to carefully consider the timing of the investments and how this interacts with the transitional rules in order to maximise allowances.