In the latest budget the Chancellor announced that the rate of Annual Investment Allowance (AIA) will change to a permanent rate of £200,000 from 1st January 2016.
AIA is effectively a 100% first year allowance for qualifying business expenditure. Such expenditure could include a tractor or baler purchased by an active farming business.
It is important to note that for businesses with a year end spanning the date of this change AIA transactional rules will apply.
For example:
• A business with a year end of the 31st March 2016 will have maximum AIA of £425,000. The maximum element of AIA that can be claimed on qualifying expenditure purchased on or after the 1st January 2016 is £50,000.
• A business with a year end of the 30th November 2016 will have a maximum AIA of £225,000. The maximum element of AIA that can be claimed on qualifying expenditure purchased on or after the 1st January 2016 is £183,333.
Due to such changes the timing of purchases qualifying for AIA is important. We would thus advise you to think carefully about what capital expenditure you are likely to purchase over the next year, therefore ensuring that the maximum tax relief can be claimed.
Should you have any queries on the above or would like to discuss any agricultural related accounting issues please contact Margaret Bunyan on 01324 441266 or via email at margaret.bunyan@drummondlaurie.co.uk