Annual Investment Allowance Extension
Currently the annual investment allowance (AIA) for businesses is £1M. This is the amount that businesses can spend in a year on qualifying plant and equipment that qualifies for 100% tax relief. The AIA had been set to reduce to £200,000 with effect from 1 January 2022. The AIA has now been kept at £1M until 31 March 2023, meaning that it will reduce to £200,000 with effect from 1 April 2023, in the absence of any further announcements.
In his March 2021 Budget, the Chancellor announced a 130% super deduction for qualifying plant and machinery effective until 31 March 2023. However, the super deduction only applies to expenditure by companies on brand new expenditure that is classified as “general pool”. The AIA is more of a catch all. The AIA also applies to expenditure by unincorporated businesses and includes special rate pool expenditure, excluding cars. Therefore, today’s announcement is still good news for many businesses, at least in the short term.
Complications exist for accounting periods that will straddle 31 March 2023. If you have an accounting period that that will straddles 31 March 2023 in which you are planning significant expenditure on plant and machinery, please seek professional advice.
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