Tax Advisory Partnership - Blog

The Annual Investment Allowance: a one-off opportunity

Written by Tax Advisory Partnership | 02-Dec-2020 11:42:28

You can currently deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax but the value of this relief is due to fall sharply and businesses may wish to maximise the full value of the allowance before this happens.

 

The AIA is a 100% first-year capital allowance for business expenditure on almost all plant or machinery (apart from cars) but it is capped at a maximum allowance. The relief is available to businesses regardless of their size or legal form. 

 

That maximum amount has changed several times since its introduction in April 2008 beginning with £50,000. The allowance was temporarily increased to £1m for the year beginning 1 January 2019. Originally, the £1m limit was due to reduce to £200,000 from 1 January 2021, but in another change , most likely driven by the current harsh economic conditions, the Government recently announced that the higher threshold will be extended until January 2022.

 

Businesses considering making substantial capital investments may wish to consider using this extra time to ensure that they maximise the value of the available relief. That said, we recognise that concerns around the current economic situation may mean that businesses do not wish to make investments at this time even if the AIA delivers substantive tax relief. 

 

Where investments are to be made care should be taken around the exact timing of expenditure. The timing of spending as well as the businesses’ accounting period can both have significant impact on how much relief can be accessed and when it is available.

 

If you want to explore the impact of the transitional rules or what the AIA means for your business then please do contact us.