The Annual Investment Allowance (AIA) will fall from the current rate of £500,000 to £200,000 from 1st January 2016, reducing the tax relief cap on investments in equipment and development capital.
The AIA offers tax relief at 100% on qualifying expenditure in the year of purchase, deductible from taxable profits.
Michael Nolan, managing director of Academy Leasing, said: “Although the fall in AIA was less severe than expected in the Summer Budget, businesses can still make substantial tax savings by making their purchases before the end of the year.
“The countdown is on to benefit from the higher existing allowance and the maximum possible tax break.”
The finance specialists explain that for businesses that have accounting periods that straddle 1 January 2016, the AIA will combine both the existing and new limits. A company with a March 31 year-end, for example, will have an allowance of £425,000 (£500,000 x 9/12ths + £200,000 x 3/12ths).
From January 1, 2016 to year-end however, the AIA will only extend to the calculated allowance for this period.