AIA and Leasing as funding considerations for Office Fit Out Projects

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There are only a few months remaining for companies wishing to take advantage of the temporary increase in the Annual Investment Allowance (AIA).

From January 2016 the AIA will be reduced to £200,000 from its current rate of £500,000. The allowance, which can broadly be defined as the amount of tax a business can claim back on investment in equipment or other investment capital, is aimed at stimulating growth and productivity in the UK economy.

The allowance is only available on items that are ‘capital purchases’ ie they must be removable and reusable. As a specialist in the commercial interiors market, we have a detailed working knowledge on how this applies to the AIA. For example, whilst furniture and some aspects of the fitout are clearly capital items, some are not so therefore do not qualify. It should also be noted that the 100% allowance is only accelerated in the first year and from an accounting point of view needs to be counted back over the following years.

If elements of your office relocation or refurbishment fall outside of the parameters of the AIA, then don’t forget leasing as a funding option. Unlike the AIA, leasing allows you to offset payments against taxable profit for the duration of the lease period (typically 5 years), and together with the fixed payments, allow you to forecast and budget with much more accuracy than would otherwise be possible. It’s a smart way of maximising business cash flow whilst leaving bank credit lines intact.

We are always happy to talk to clients about the most tax efficient way of funding an office relocation or refurbishment project. A combination of HP and lease rental can provide a very cost effective solution to budget restrictions and make the best of the tax saving opportunities.