Annual Investment Allowance
The Annual Investment Allowance is the amount of expenditure on plant on which a business can claim 100% relief in the period of purchase. Last year, the AIA was increased to £500,000 until 31 December 2015, when it was scheduled to revert to £25,000. In his speech, the Chancellor stated that the limit will not be reduced to that very low figure on 1 January 2016, but a decision on the exact amount will not be taken until later in the year – possibly not until the Autumn Statement, which usually happens in late November or early December.
Anyone subject to income tax will pay more if they have very high income one year and low income the next than if they have an even spread from year to year – they will suffer more 45% and 40% tax, and may waste basic rate bands and personal allowances. Because farmers are particularly prone to profit fluctuations, they are allowed to average their profits over two adjacent years in certain circumstances – taking some profit from a good year and taxing it instead in a lean year. The Chancellor announced that this spreading will be extended to cover five years rather than two with effect from 6 April 2016. There will be a consultation later in the year on the details of how the new rules will work.