Posted by admin - November 2, 2020 9:18 am Annual Investment Allowance

Extension to the Annual Investment Allowance (AIA)

Who does this affect?

The extension to the Annual Investment Allowance (AIA) affects businesses who are looking to invest in excess of £200,000 in plant and machinery from January 2022.

Temporary increase in the limit of AIA

This measure will temporarily increase the limit of the annual investment allowance (AIA) from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023.

The reason for the temporary increase in AIA

The rate level of Annual Investment Allowance was set in the 2015 Summer Budget 2015 at a new rate of £200,000 which commenced on 1 January 2016. This was then increased temporarily during the 2018 Budget to £1,000,000 for a two year period starting from 1 January 2019. The purpose of this increase was to encourage more business, especially for businesses which do not qualify for the super-deduction, and to help simply the tax relief process.

In The Autumn Budget and Spending review in 2020, this was extended again by a further year. Following on from this the super-deduction, together with a special rate allowance, were introduced at 2021 Spring Budget. This provided temporary enhanced rates of relief for qualifying expenditure up to 31 March 2023, incurred by companies chargeable to UK Corporation Tax and, on certain types of plant and machinery assets.

Businesses will therefore still be able to continue to claim up to £1 million in same-year tax relief through the Annual Investment Allowance (AIA) for capital investments in plant and machinery assets until 31 March 2023. 

What is the Annual Investment Allowance?

The Annual Investment Allowance (AIA) enables businesses to deduct the full cost of plant and machinery from their profits in the year of purchase.

You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.

If you sell the item after claiming AIA, however, you may need to pay tax.

What you can claim on

You can claim AIA on most plant and machinery up to the AIA amount.

What you cannot claim on

You cannot claim AIA, however on:

  • cars
  • items you owned for another reason before you started using them in your business
  • items given to you or your business

For these claims you will need to claim writing down allowances instead.

The timing of capital expenditure needs to be considered very carefully to ensure maximum tax relief is obtained. Above all else, capital expenditure should always be for sound commercial reasons with the tax saving a secondary factor.

For further information regarding capital expenditure, AIAs and what might qualify for tax relief, please speak to the partner in your local MFW office