ONE unexpected headline in the Chancellor’s autumn statement was the temporary two-year increase in the Annual Investment Allowance (AIA) to £250,000, which was effective from January 1.

This will affect many businesses planning future capital expenditure, and the U-turn came less than nine months since the Government dramatically reduced the allowance from £100,000 to only £25,000.

The change will allow businesses to claim 100 per cent relief for qualifying expenditure of up to £250,000.

The increase in AIA is welcome news for small and medium sized businesses looking to invest more than £25,000 in plant and equipment.

Any businesses considering a major outlay in plant and equipment in the next few years would be well advised to ensure that the expenditure date falls before December 31 next year.

However, care needs to be taken due to some fairly complicated transitional rules.

The available AIA will be pro-rata for accounting periods that straddle the date of change.

Indeed, there will be some accounting periods ending between January 1 and March 31 this year (companies) and April 5 (unincorporated businesses) where the hybrid rate will be made up of three rates including the previous £100,000 limit Confused?

To complicate matters further, the way the previous reduction in the allowance from £100,000 to £25,000 was introduced complicates further the maximum entitlement during the period for which the £25,000 limit applies.

The same can apply to refurbishing or even purchasing a building. A building can contain hidden items of plant and machinery that many people do not realise will qualify for capital allowances.

If you are refurbishing a building make sure that you obtain a very good analysis and ensure that your accountant fully understands capital allowances. Purchasing a building from April last year onwards requires the seller and purchaser to agree the amount of acquisition and disposal proceeds for capital allowances purposes.

However, the purchaser still has a significant planning opportunity in cases where the seller has not claimed capital allowances on the building, something that is often overlooked.

As is often is the case, headline tax changes are not as straightforward as they appear. In some cases the timing of expenditure will need to be planned carefully to make best use of the relief.