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This publication is available at https://www.gov.uk/government/publications/annual-investment-allowance-permanent-increase-to-200000/annual-investment-allowance-permanent-increase-to-200000
Who is likely to be affected
Businesses investing more than £25,000 in plant and machinery from January 2016.
General description of the measure
The measure increases the permanent level of the Annual Investment Allowance (AIA) from £25,000 to £200,000 for all qualifying investment in plant and machinery made on or after 1 January 2016.
This measure is designed to encourage investment by providing a permanent generous incentive to invest in plant and machinery and giving certainty to businesses planning to invest.
Background to the measure
The maximum amount of the AIA was temporarily increased from April 2014 until 31 December 2015 after which it would have returned to £25,000. This measure permanently increases the amount of the AIA to £200,000 from 1 January 2016.
The new permanent level of AIA will have effect from 1 January 2016. Where a business has a chargeable period that spans that date, the transitional rules outlined below will apply.
Current law is included in Chapter 3A and Chapter 5 of Part 2 of the Capital Allowances Act 2001 (CAA). Businesses are able to claim the AIA in respect of their expenditure on both general and ‘special rate’ plant and machinery. There are however certain exceptions, set out in section 38B of CAA 2001, the main exception being expenditure on cars. The AIA is a 100% upfront allowance that applies to qualifying expenditure up to a specified annual limit. The current limit will revert to £25,000 from 1 January 2016.
Where businesses spend more than the annual limit, any additional qualifying expenditure will attract relief under the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing-down allowances at the 18% or 8% rate respectively. Current law included at Paragraph 4 Schedule 2 Finance Act 2014, provides the transitional provisions for chargeable periods which straddle 1 January 2016. The provisions themselves are unchanged but the limit to which they reference will be altered. A revised example of how the transitional provision works is provided below, using £200,000 as opposed to £25,000.
Legislation will be introduced in Summer Finance Bill 2015 to increase the permanent AIA limit to £200,000 from 1 January 2016.
Where a business has a chargeable period that spans 1 January 2016, the maximum allowance for that business’s transitional chargeable period comprises 2 parts:
(a) the AIA entitlement, based on the temporary £500,000 annual cap for the portion of the period falling before 1 January 2016
(b) the AIA entitlement, based on the £200,000 cap for the portion of the period falling on or after 1 January 2016.
A company with a 12 month chargeable period from 1 April 2015 to 31 March 2016 would calculate its maximum AIA entitlement based on:
(a) the proportion of the period from 1 April 2015 to 31 December 2015, that is, 9/12 x £500,000 = £375,000, and
(b) the proportion of the period from 1 January 2016 to 31 March 2016, that is 3/12 x £200,000 = £50,000.
The company’s maximum AIA for this transitional chargeable period would therefore be the total of (a) + (b) = £375,000 + £50,000 = £425,000, although in relation to (b) (the part period falling on or after 1 January 2016) no more than £50,000 of the company’s actual expenditure in that part period would be covered by its transitional AIA entitlement.
Summary of impacts
|Exchequer impact (£m)||2015 to 2016||2016 to 2017||2017 to 2018||2018 to 2019||2019 to 2020||2020 to 2021|
|These figures are set out in Table 2.1 of Summer Budget 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Summer Budget 2015.|
|Economic impact||By accelerating the relief on qualifying expenditure up to £200,000 limit, this measure will provide an incentive, particularly to small and medium-sized businesses, to increase their capital expenditure on plant and machinery.|
|Impact on individuals, households and families||This measure is not expected to impact on individuals, families or households. Capital allowances can only be claimed in the course of business.|
|Equalities impacts||The measure is not expected to impact on the equality of groups sharing protected characteristics.|
|Impact on business including civil society organisations||This measure is expected to result in a negligible one-off cost to approximately 15,000 businesses and civil society organisations claiming more than £200,000 in AIA, as they will need to determine their maximum AIA in the transitional chargeable period. The impact on businesses' on-going administrative burdens are expected to be negligible as most of the businesses affected are likely to still need to calculate some capital allowances on a year-by-year basis for previously pooled expenditure and/or new expenditure not qualifying for the AIA.|
|Operational impact (£m) (HMRC or other)||It is not anticipated that there will be any material additional information technology and compliance costs for HM Revenue and Customs (HMRC) as a result of the increase in the amount of AIA.|
|Other impacts||Small and micro business assessment: an increase in the AIA will benefit small and micro businesses who invest between £25,000 and the new level. Other impacts have been considered and none have been identified.|
Monitoring and evaluation
The measure will be monitored through information collected from tax returns and through regular engagement with businesses and their representative bodies.
If you have any questions about this change, please contact Jim Rogers on Telephone: 03000 588833, email:firstname.lastname@example.org.