The capital allowances Annual Investment Allowance (AIA) will be set at a permanent £200,000 from 1 January 2016.

The AIA is currently £500,000, it had been previously scheduled to decrease to £25,000.

Complicated calculations

The policy paper confirms that the much criticised current method of calculating and restricting the allowance where accounting periods straddle one or more change dates will continue. As the allowance will no longer be subject to fluctuations, the need for convoluted calculations (and inevitable errors) should gradually become a thing of the past.

Many unincorporated businesses have found that they have been unable to obtain tax loss relief when incurring high levels of capital expenditure due to the cap on unrestricted reliefs. This contiues to be an issue for these type of businesses.

The policy paper, including an example of an accounting period straddling the date can be found here.