Check AIA claims for September year ends

Those with a September year end need to carefully calculate how much Annual Investment Allowance (AIA) they are entitled to claim.

The AIA offers a 100% capital allowance for the first £250,000 of qualifying investment in plant and machinery for each of the two years from 1 January 2013. This means that 100% of the cost of equipment can set off against income for tax purposes.

Timing of expenditure is important because AIA allowance periods often do not match business year ends.

For example, in 2013 a business with a September year end will be eligible for a maximum AIA of £193,750, because for nine months of the accounting year from 1 January, the AIA was available at the increased rate of £250,000 and for three months it was at the earlier, lower rate of £25,000 (see AIA calculations below).

It is also important that the paperwork is in order, says Nick Dee, head of agriculture at business adviser and accountant Hazlewoods.

“If an asset is being purchased outright, with no finance, the acquisition date for tax purposes is the date that the invoice is issued. However extended payment terms cannot be available,” said Mr Dee.

“If there is a gap of more than four months between the invoice date and the date on which payment is required, the expenditure is not incurred until the date on which payment is due.”

Where an asset is being bought with hire purchase, the acquisition date for tax purposes is the date the asset is brought into use. Therefore, for agricultural machinery, the machinery must have been delivered before the year-end for a tax deduction to be obtained. Additionally, hire purchase must be on normal HP payment terms.

AIA calculations

  • AIA available to businesses with a financial year ending on 30 September will be 9/12 of £250,000 plus 3/12 of £25,000, which is £193,750.
  • Of this, only £6,250 of eligible expenditure may occur between 1 October 2012 and 31 December 2012, leaving £187,500 of relievable expenditure for the following nine months.
  • The full £250,000 will only initially be available in the first 12 month accounting period beginning on or after 1 January 2013.
  • A business with a 31 December year end and incurring £250,000 of eligible expenditure in 2013 will be able to claim for 100% of that spending in the year ended 31 December 2013.
  • AIA is not available to a partnership with a corporate partner or one that includes a trust as a partner. However, investment by a corporate partner or a trust may qualify for AIA.
  • AIA applies to any moveable equipment, but can also apply to fixed equipment such as grain driers. The facts of each claim need to be reviewed to confirm allowances available.

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