2012 sees the reduction in the Annual Investment Allowance (AIA), the generous tax relief available on the purchase of assets.  From April 2012, the concession reduces from £100,000 to £25,000.  We highlighted this in our blog from May 2011.  However, we thought we would describe a scenario to outline the importance of getting the timing right.

The AIA is apportioned on a time basis.  For a company with a 31 December year end, the entitlement for 2012 will be:

£100,000 x 3/12          £25,000

£25,000 x 9/12            £18,750

Total                            £43,750

If the company wishes to spend £50,000 on assets, they would receive £43,750 AIA if the expenditure was before 31 March 2012.

However, if the expenditure was after 1 April 2012, the AIA would be restricted to £18,750.

The balance of allowances that would not benefit from AIA would still receive relief, but only at 20% – and this is reducing from April 2012 to 18%.

So you can see how the timing of expenditure can significantly accelerate the relief you receive.