As a capital intensive industry, the availability of 100% AIA on qualifying machinery has had a significant impact on reducing farmers’ tax liabilities in recent years.
In April 2013 this allowance was temporarily increased from £25,000 to £250,000 to help stimulate growth in the wider economy. Currently the AIA is a whopping £500,000 but this level of allowance ends on 31 December 2015.
It was previously reported that the AIA would fall back to its previous level of £25,000 on 1 January 2016 however the good news is that in his summer budget, The Chancellor announced that the AIA would be permanently changed to £200,000 from 1 January 2016.
There are however some complicated transitional rules affecting all businesses other than those with a 31 December year end. Capital expenditure will fall into the period either before or after 31 December, depending on when the expenditure is incurred.
Take a 31 March 2016 year end as an example. The maximum AIA available to this business would be approximately £375,000 from 1 April 2015 to 31 December 2015 (9/12 x £500,000) and £50,000 from 1 January 2016 to 31 March 2016 (3/12 x £200,000).
However, it is important to note that unused AIA in the period to 31 December 2015 does not carry over to the period from 1 January 2016 to 31 March 2016. If for example the only qualifying expenditure incurred during the year ended 31 March 2016 was a combine costing £200,000 in March 2016, only £50,000 would qualify for AIA and the remaining £150,000 would be included in the general plant pool, eligible for an annual writing down allowance of 18%.
Typically businesses may wait until close to their year end date to review their capital expenditure however we would urge you to perform your expenditure review now to ensure that any planned capital spending is finalised and the assets delivered by 31 December to ensure you do not miss the opportunity to maximise your AIA claim.
