Watch out for Annual Investment Allowance pitfalls

Make sure you know the rules on claiming annual investment allowances (AIAs), warn advisers.

AIAs are important tax planning tools and key points are often missed or misunderstood, said Gary Markham of Churchgate Accountants.

Advice should be sought and issues include:

Timing and funding

If funded by hire purchase (HP), the asset must be brought into use before the accounting year end. So, for large assets such as combines, consider changing the year end if this involves a change of only a month or so.

If the year-end is extended, this could enhance tax relief in the initial accounting period.

If AIA is not claimed because the asset is not brought into use in the year, a claim can still be made in respect of that asset in the following year. This could offer an advantage as it will then be brought into use in the following year when higher allowances may be available.

The 2012 AIA of £25,000 is not time-apportioned for assets purchased in the period to 31 December 2012, in the way that it is for the £250,000 for 2013. Therefore assets purchased (or assets brought into use where purchased under HP) on or before 31 December 2012 can benefit from the full 2012 allowance of £25,000.

For expenditure after 1 January 2013, the full allowance will include both the time-apportioned 2012 (which in this situation would be time-apportioned) and 2013 allowances, less any of the 2012 allowance used.

Mixed partnerships and LLPs

When a partner in a partnership or member of an LLP is a company or a trust then AIA in that partnership or LLP is not available but only an 8% or 18% Writing Down Allowance (WDA).

However if the member is a company, then that entity has a potential AIA as long as it is trading; it also needs VAT registration. If a member of a joint venture (JV) partnership is itself a farming partnership, when a company or trust is introduced into that farming partnership then both the partnership and the JV partnership are excluded from claiming AIA.

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