2012 sees the reduction in the Annual Investment Allowance (AIA), the generous tax relief available on the purchase of assets. From April 2012, the concession reduces from £100,000 to £25,000. We highlighted this in our blog from May 2011. However, we thought we would describe a scenario to outline the importance of getting the timing right.
The AIA is apportioned on a time basis. For a company with a 31 December year end, the entitlement for 2012 will be:
£100,000 x 3/12 £25,000
£25,000 x 9/12 £18,750
If the company wishes to spend £50,000 on assets, they would receive £43,750 AIA if the expenditure was before 31 March 2012.
However, if the expenditure was after 1 April 2012, the AIA would be restricted to £18,750.
The balance of allowances that would not benefit from AIA would still receive relief, but only at 20% – and this is reducing from April 2012 to 18%.
So you can see how the timing of expenditure can significantly accelerate the relief you receive.