Annual Investment Allowance (AIA).
The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses. Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.
The maximum amount of the AIA was increased to £250,000 from £25,000 for the period from 1 January 2013 to 31 December 2014. The amount of the AIA is further increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses until 31 December 2015. The AIA will return to £25,000 after this date.
Whilst in many ways this is a welcome initiative, a couple of important factors need to be taken into consideration when deciding on how to fund an office fit-out project:-
- The AIA can only be used for assets which qualify for capital allowances, so as always only a proportion of a standard fit-out will meet the HMRC’s criteria.
- The AIA is only a method of deferring the tax burden on a business, not a way of escaping it altogether. Yes, it’s valuable from a net present value cash flow perspective, but the HMRC will effectively claw back the tax in subsequent years meaning higher tax bills in future.
- Lease rental is 100% tax allowable, so everything included in a leased office fit-out can be fully offset against tax over the duration of the lease. Therefore, leasing is still the most tax efficient method of funding an office fit-out project when all the factors are taken into consideration. There may be an argument to consider Hire Purchase as an alternative, because this would qualify for the AIA whilst at the same time spreading the cost of the project (so the best of both worlds?). However, point 2) above would still apply, so it’s not as straightforward as it might appear.
As the UK’s only specialist operating exclusively in this market, Plus Finance will be happy to advise on the best funding solution for your project. Just call us on01494 783773 or email [email protected].