What is the Annual Investment Allowance?
The annual investment allowance is the amount you can claim in your business tax return for money you spend on capital equipment in the year you spend it.
HMRC separates your business costs into revenue and capital costs. Revenue costs are generally those that you might incur every year such as repair costs and stationery or printing costs. Capital costs will be for items of equipment or sometimes things like websites which you expect to benefit the business over several years.
In the accounts we allow for these capital costs by charging depreciation. We spread the cost over the years we expect the business to use the asset. But HMRC will not allow depreciation as a cost so we have to claim capital allowances.
But this can cause a problem because capital allowances are claimed over many years but the business would like to claim the cost against the tax bill immediately.
This is where the annual investment allowance can help. Up until the end of December 2015 a business can claim £ 500,000 of expenditure against the tax bill in the year it is incurred. From January 2016 this figure reduces to £200,000 and transitional rules will affect how much can be claimed.
In some cases you may not be able to claim capital allowances so it is worth seeking advice before making a claim.