The Annual Investment Allowance (AIA) allows for a 100% tax deduction on qualifying expenditure on plant and machinery to be deducted from your profits before tax. The relief is normally capped at £200,000 per annum but was temporarily increased to £1 million for a 2-year period from 1 January 2019 to 31 December 2020.
This means that there is now just over two months left to take advantage of the increased limit. If you are thinking of incurring large items of capital expenditure for your business (over £200,000), the timing of such a move should be carefully considered. There could be a significant tax advantage if you accelerate plans, where possible, to incur expenditure before the end of the 2020.
There are transitional rules for businesses whose accounting periods span the operative date of any changes. If the basis AIA changed in the period for which a claim is being made, the AIA must be time-apportioned accordingly.
The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.
A claim for AIA must be made in the period the item was bought. This date is defined as the date when a contract was signed – if payment is due within 4 months of the contract being signed – or the actual payment date if it’s due more than 4 months later.
As always, it is important to consider commercial, cashflow and other matters as well as the tax effects. If you are contemplating a large capital purchase please call so that we can help you decide on the best-fit planning opportunities.