The Finance Act 2014 introduced a temporary increase in the Annual Investment Allowance (AIA). From 1 April 2014 (for companies) and 6 April 2014 for the self-employed, the ability to write off qualifying capital purchases against your profits for tax purposes increased to £500,000.
This generous tax allowance will reduce to £25,000 on 1 January 2016. Any business that needs to invest in new plant or equipment should time their expenditure to make the most of this increase in the AIA.
How much is this worth?
Depends on the type of business structure you have created to manage your business. If you are self-employed (a sole trader or in partnership) you will pay income tax on your profits. The AIA allows you to deduct the full cost of qualifying capital acquisitions from your profits. For example, if you purchased plant for £100,000 and made taxable profits of £300,000 as a sole trader, you could deduct the full cost of the plant from your profits. At this level of profitability you would possibly be paying income tax at 50% so your £100,000 investment would actually cost you £50,000. Self-employed traders paying income tax at 20% or 40%, or companies paying corporation tax at 20% would save tax at proportionately lower rates.
This is not an opportunity to miss. As always planning is critical in order that any tax benefit is maximised.