BUDGET MARCH 2010: Increase in Annual Investment Allowance is not as generous as it first seems

To encourage capital investment by entrepreneurial businesses, the Chancellor announced a doubling of the Annual Investment Allowance (AIA) for expenditure on plant and machinery from £50,000 to £100,000 per annum from 1 April 2010. Above this threshold, capital expenditure will be eligible for the standard capital allowances rate at 20 per cent. What Alistair Darling did not mention, however, is that the special 40 per cent first year allowance (FYA) rate, introduced last year, will end on 31 March 2010. So, if a company is about to spend more than £250,000, the immediate effect of the removal of the 40 per cent FYA may outweigh the immediate benefit of the increased AIA. Stuart Lisle, Tax Partner at BDO LLP in Southampton commented: “Whilst the doubling of the AIA should be welcomed, the benefit is only apparent for those companies making modest capital investments. For the larger companies or those with greater capital expenditure, this will have little impact on their overall corporation tax bill.” The Central South Report published last week by BDO in Southampton illustrated the strength and depth of the manufacturing industry across the region, and as an industry which invests heavily in plants and machinery, this legislation could have a far reaching impact on the South’s economy. For a copy of the report please email Emma Wareham at BDO in Southampton: emma.wareham@bdo.co.uk or visit the website at www.bdo.co.uk/centralsouthreport - Ends –

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