Surprise AIA increase to £100,000
A surprise announcement was the doubling of the Annual Investment Allowance (AIA) to £100,000 from 1 April 2010 (for companies, from 6 April 2010 for unincorporated businesses). The detailed announcement is set out in Budget Notice 09 (BN09)
Companies and businesses with an accounting period spanning the changeover date will be able to claim proportionately at the two rates - for example, the AIA for a 31 December 2010 accounting year works out at £87,500, although only £50,000 can be applied to expenditure before 1/6 April 2010.
Unlike the FYA extension which ends this year, this increase in AIA has no expiry date (at the moment!). There is an anti-avoidance sting in the tail, however, with a rule to disallow property loss relief against general income to the extent that the loss is attributable to the AIA. From 24 March 2010 any tax avoidance arrangements deemed by HMRC to use property reliefs as a way to lower tax liabilities will be treated as attributable to AIA.
There are no other changes to AIA rules, so as before cars don't qualify and neither do partnerships which include a limited company as a partner. In a separate announcement (BN42), zero-emmission goods vehicles will now attract a 100% first year capital allowance.
John Whiting, Tax Policy Director at the CIOT, welcomed the increase and may have called it “a good simplification measure", but he may have written that comment before looking at the fine detail, which sets out a somewhat convoluted mechanism for working out the maximum AIA entitlement for a 31 December year end. For the period 1 January 2010 to 31 March, a company would be entitled to 3/12 x £50,000, equating to £12,500, plus 9/12 of the new £100,000 AIA, equalling £75,000 adding up to £87,500 for this year.
Otherwise, the temporary 40% First year Allowance on plant and machinery ends on 31 March/5 April 2010, so anyone investing more than £250,000 in plant and machinery needs to move quickly to secure the higher rate of capital allowances currently available.
What's particularly interesting about this measure is the way it deliberately sets out to undermine the Conservatives' election campaign promise to abandon the AIA. The costs may be unsupportable in the long term, but business owners who enjoy to the extra relief will be bound to react negatively if the Tories then take it away.