Increased Annual Investment Allowance to be extended until 2023

The Annual Investment Allowance (AIA) is a 100% capital allowance available for a business’s qualifying expenditure on plant and machinery. It was introduced in 2008, to encourage investment for businesses who want to expand, improve or keep with their competitors by switching to the latest, cutting-edge technologies, for example.

Using the AIA, businesses are allowed to write off 100% of the cost of qualifying assets, against their taxable profits, up to a designated limit, which has changed several times. The limit has been as high as £1m since 1 January 2019; but this temporary increase was due to come end on 31 December 2021, when it would revert to the permanent rate of £200,000.

AIA accelerates relief, which is great for cashflow and generally making the whole process far simpler. If the full cost of an item isn’t claimed for AIA, perhaps because the business has low profits, the expenditure would be eligible for writing down allowances (WDAs) instead, which have the main rate and a special rate of 18% and 6% respectively or you can claim part of the cost as WDAs, and the rest as AIA.

There’s a wealth info on the government’s website about what kind of plant and machinery expenditure qualifies for AIA; the main one that doesn’t is expenditure on cars, also any item that was given to you or the business. Check online for others.

 Also, if you sell the item before claiming AIA, you may need to pay tax on it.

The extension could benefit your business

As part of the Autumn Finance Bill, there will be legislation to maintain the temporary £1m AIA for a further year and three months, up to 31 March 2023. This aligns it neatly with the end of the super-deduction and special rate allowance.

So, if you do plan to invest in qualifying plant and machinery, this is great news – particularly if your business is not eligible for the super-deduction. What will happen after March? We can expect it to revert to the permanent level of £200,000, with transitional rules to apply.

If you want to maximise the AIAs available now, until the end of March 2023, you can talk with us at Figurit, as we are experts in helping business optimise their profits and tax planning.

For help with business or personal tax planning, call Figurit (formerly known as Lansdell & Rose) on 020 7376 933 or complete the form below.