The Annual Investment Allowance will increase from its current level of £200,000 to £1,000,000 for the calendar year 2019 and 2020. Steve Moody of Construction Plant Finance explains more.
The Annual Investment Allowance (AIA) is the amount of capital equipment a business can purchase and be able to claim all related tax benefits in the year the assets were purchased. The effect is to bring immediate tax relief on capital expenditure that would otherwise take many years to recover and as such it has acted as a powerful incentive for businesses looking to bring forward investment decisions.
So what difference will it make?
Firstly, to benefit from £1,000,000 of potential tax relief a business must be making a pre-tax profit of at least £1,000,000, so many SMEs will not be able to take the full benefit of the extra allowance.
For larger businesses that are looking to reduce their short-term tax liability, the new allowance should stimulate investment. It is worth repeating that the allowances apply both to equipment purchased outright and equipment subject to Hire Purchase agreements with the latter giving businesses immediate tax relief whilst spreading the cost of acquisition over an agreed period, typically between two and seven years.
Whilst the AIA is allocated by calendar year (January to December), the ability of a business to maximise tax saving will depend on how much qualifying investment is made in its financial year. A business will have to allocate 2019’s £1,000,000 allowance according to its own financial year. So if a business has a year end of 31 December 2019, the calculation is straight forward as the financial year and AIA cover identical timescales and the business will have the full £1,000,000 allowance available for immediate tax relief. For any business that wishes to take full advantage of their available AIA but avoid an immediate cash outlay, a Hire Purchase agreement is the ideal solution.
About Construction Plant Finance
Headquartered in Hampshire, Construction Plant Finance is the first independent finance company to be introduced solely for the construction plant and equipment sector since 1997, that is neither owned by a bank or linked to a manufacturer. The company is a joint venture between the long-established names of SKM Asset Finance and Corporate Asset Solutions bringing together the collective expertise, management and operational skills of both finance businesses.
Options include Hire Purchase, Finance Lease, Operating Lease and Contract Rental specifically for financing construction plant with competitive solutions available for standard plant; from dumpers and excavators, to more specialist equipment such as vacuum excavators, cranes, road rail and waste recycling.
In order to meet the evolving demand for electric and solar powered construction equipment, ‘Green Finance’ is also available for an ever-increasing number of locations where cleaner machines with zero emissions are needed. Such equipment can range from electric excavators and dumpers, to solar powered lighting towers and welfare units. Traditionally, they are more expensive purchases than their diesel counterparts.