As a capital intensive industry, the availability of 100% AIA on qualifying machinery has had a significant impact on farmers’ tax liabilities in recent years.
In April 2013 this allowance was temporarily increased from £25,000 to £250,000 to help stimulate growth in the wider economy and was later changed to a permanent allowance of £200,000 from 1 January 2016.
In his 2018 budget, the chancellor announced a temporary increase in the AIA to £1 million with effect from 1 January 2019 for a period of two years to 31 December 2020.
There are however some complicated transitional rules affecting all businesses other than those with a 31 December year end.
Firstly, the allowance will need to be apportioned over the businesses accounting period, therefore a business with a 31 March year end will have a maximum AIA claim of £400,000 for the year ended 31 March 2019 ( 9 / 12 x £200,000 and 3/ 12 x £ 1 M). The year ended 31 March 2020 will attract the full £ 1 M AIA then the year ended 31 March 2021 will be restricted to £800,000 assuming the AIA returns to £200,000 from 1 January 2021 (9 /12 x £ 1 M and 3/12 x £200,000).
It is also important to note that the timing of acquisition is critical to the availability of AIA. During the year ended 31 March 2019, the total claim is £400,000 however only £200,000 (the old limit) can be claimed in the period to 31 December 2018 with any excess spending on qualifying assets being added to the plant pool. A further £200,000 would then be available for the 3 months to 31 March 2019.
Similarly, the total AIA claim for the year ended 31 March 2021 will be £800,000 however only £50,000 (3/12 x £200,000) will be available for machinery purchased between 1 January 2021 and 31 March 2021 (again assuming the AIA returns to £200,000 from 1 January 2021 ).
For example, farmer A and farmer B both have a 31 March year end and they both spend £800,000 on qualifying machinery during the year ended 31 March 2021. Farmer A buys his machinery on 31 December 2020 and the entire amount qualifies for AIA. Farmer B buys his machinery a day later, on 1 January 2021 and only £50,000 qualifies for AIA with the balance of £750,000 added to the plant pool.
Care will therefore be required when farmers plan their annual capital expenditure review.
