/ Commentary / Timing is everything

Timing is everything

September, 2015

The secret of a good joke may be timing, but get this wrong and no-one will be laughing.

The Annual Investment Allowance is the amount that a company can obtain a 100% write down against its profits each year for qualifying expenditure on items such as plant and machinery etc.

The current level of Annual Investment Allowance was set to fall from £500,000 to just £25,000 this forthcoming January, but in his Summer Budget the Chancellor announced a new permanent figure of £200,000 to take effect from 1 January 2016.

That sounds like great news and you might have thought that if you incurred expenditure after 1 January 2016 then you would be entitled to a £200,000 write down? Right?

Absolutely not!

Due to some very odd calculation rules relating to accounting periods straddling 1 January 2016 the allowable expenditure can be very low indeed and I have been writing to clients this morning that I think might be effected by these rules to let them know that if they are thinking of incurring expenditure in this current year, they ought to do so before 1 January 2016.

For example, I have a client company with an accounting year end of 31 January 2016. I calculate that if they incur expenditure before 31 December 2015 they can obtain an immediate write down of up to £458,333, but if they leave it until 1 January 2016 they could only claim a maximum of £16,667. That is a huge difference.

Similarly, I have a client with an accounting year end of 31 March 2016. I calculate that if they incur expenditure before 31 December 2015 they can obtain an immediate write down of up to £375,000, but if they leave it until 1 January 2016 they could only claim a maximum of £50,000. Again that could come as a nasty shock for the unprepared.

The difference that the timing of the expenditure can make is both surprising and worrying. If your business is thinking of incurring capital expenditure in an accounting period straddling 1 January 2016 then it could well be worth speaking to an accountant as to how and when to make that expenditure.