To stimulate business investment, Chancellor Philip Hammond announced in the last Budget a temporary increase in the Annual Investment Allowance from £200,000 to £1m.
Businesses can claim £1 against taxable profits for every £1 they spend on qualifying expenditure, even if the money is borrowed, so the savings can be substantial.
For example, if you made a taxable profit of £100,000, but spent £80,000 on new machinery during the year, your Corporation Tax bill would be based on £20,000, not £100,000. That would be a saving of £15,200 at the current Corporation Tax rate of 19%.
Qualifying expenditure includes plant and machinery, office equipment, commercial vehicles, fixtures and fittings and more. The principal exclusions are cars, unless they are used exclusively in the business, and items given to the business or business owner.
The British Chambers of Commerce is enthusiastic about the move with Suren Thiru, Head of Economics saying:
“This announcement will provide a major enticement for firms to invest and grow”.
However, the Association of Taxation Technicians (ATT) is less enthused, pointing out that for 97% of businesses, the change will make no difference at all as they won’t be able to invest £200,000 let alone £1m. Either way, it’s a useful reminder of the tax breaks that are available on asset purchases.
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For advice on using your Annual Investment Allowance, please speak to one of our team today on 01483 205850