Annual Investment Allowance Limit extended until January 2022

The Annual Investment Allowance (AIA) was temporarily increased to £1m for a two-year period and was due to end on 31 December 2020. However, the Treasury has announced that this will be extended by a further year, until 1 January 2022.

The increase to the AIA allows businesses to obtain 100% tax relief on qualifying capital expenditure such as plant, machinery, vans and tools, up to £1m in the year of purchase. This temporary limit is the highest we have seen since AIA was introduced in 2008 so where funds permit, it can be beneficial to plan and incur a large-scale capital expenditure prior to 1 January 2022 to benefit from the temporary increase.

Financial Secretary to the Treasury, Jesse Norman, commented,

“It is vital that we support business through the difficult months ahead. Extending the Annual Investment Allowance’s £1 million cap will give businesses the confidence they need to invest into next year, helping them to grow whilst benefitting the wider economy too.”

The extension takes away the time pressure to spend funds on capital expenditure prior to 31 December 2020 and allows the planning of capital expenditure to continue into 2021 without the threat of reduced allowances and perhaps, when pressure on cashflow is less. However, businesses with a year end that straddles 31 December 2021 should be aware of the transitional rules that apply, meaning the timing of capital expenditure should be carefully planned to ensure the AIA is maximised.

If you are planning on incurring significant capital expenditure in the near future, we can advise you on the best time to incur this expenditure and ensure your business does not miss out on the potential tax relief available. To discuss, please get in touch with your usual EQ contact or call one of our offices.