Annual investment allowance reverts to £1m for another year

The temporary tax break for businesses investing in equipment - the annual investment allowance (AIA) has been extended.

In a news statement on 12 November, the government announced that the AIA limit, which was due to revert to £200,000 from 1 January 2021, will remain at £1 million for another year.

The policy change means that businesses can continue (until 1 January 2022) to claim a tax deduction for the accounting period in which they purchase qualifying plant and machinery, up to the £1 million cap. No other changes to the AIA rules are indicated in the government’s statement.

It is an important planning note that where a business year end differs to the calendar year, allowances are pro-rated. For example if you have a March year end the allowance available in the 9 months to December 2021 would be £750,000 and the three months to March 2022 would be £50,000. It is not simply a case of £800,000 being available for the full accounting year, the date of purchase is important and the tax saving could be vastly different depending on the day the purchase occurs.

If you are considering significant investment in plant and machinery and would like advice on how the above affects you contact us for more information.