What is the effect of the annual investment allowance on a company's purchase of qualifying plant and machinery?
Answer and explanation
Correct answer: A. The cost of qualifying expenditure up to £1 million a year can be deducted in full from taxable profits
- Step 1: Capital expenditure is not deductible as an expense, but capital allowances provide relief.
- Step 2: The AIA gives a 100% deduction for qualifying expenditure up to the annual limit.
Answer
The cost of qualifying expenditure up to £1 million a year can be deducted in full from taxable profits.
Why not the others: That describes writing down allowances, which apply to expenditure not covered by the AIA. Capital allowances provide relief for capital expenditure. Equal instalments describe accounting depreciation, which is added back for tax.
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