Making the most of the increased AIA limit extension

Category: LeisureTaxation - Posted On: Nov 16 2020

With many leisure and hospitality businesses either closed or working on reduced capacity due to COVID-19, and the recent extension of the Annual Investment Allowance (AIA) limit, now is the time to review your planned capital expenditure to avoid missing out on valuable tax relief.

The AIA limit of £1m was due to drop back to £200k from 1 January 2021, however the UK Government have announced a temporary extension to the increased limit until 1 January 2022 to help stimulate investment.

The AIA provides 100% tax relief on the cost of qualifying plant and machinery within the year of purchase and can significantly reduce the businesses exposure to tax. Any qualifying spend not covered by the AIA will be subject to writing down allowances at either 6% or 18%. If your financial year end falls on 31 December 2021 then it should be straightforward to calculate. However, if it straddles 2021/2022 then transitional rules will apply which can have unexpected consequences.

If any expenditure is incurred in the period falling on or after 1 January 2022, once the AIA has reverted to £200,000, there will be a cap on the amount that can be claimed. Effective tax planning now for next year will help avoid the potential trap when the limit reduces, and could result in a significant tax saving if the timing of expenditure is calculated in advance.

Hire purchase can also be used to acquire assets and allow the cost to be spread over several years but the same capital allowances are available as if it had been acquired outright.

Our specialists would advise that businesses plan to incur any capital expenditure in the period to 31 December 2021 and we can offer our support to ensure their AIA claim is maximised.

Timing is everything, and getting it wrong by even a day could prove costly. For further information on what qualifies and the amounts that your leisure business can claim, please contact our EQ Leisure team on or contact one of our offices.