In a move that will be welcomed by businesses, the Government has announced that the planned reduction of the Annual Investment Allowance (AIA) from the temporary rate of £1 million to £200,000 on 1 January 2021 has been postponed. The temporary rate of £1 million will now be extended until 31 December 2021, giving businesses an extra year to invest in any expensive plant or machinery.

What is the Annual Investment Allowance?

The AIA provides a 100% tax deduction for capital expenditure on qualifying plant and machinery. It can be a particularly valuable relief on the acquisition or refurbishment of commercial buildings, although it cannot be used against expenditure qualifying for the newer Structures and Buildings Allowances.

Planning is essential

This extension gives businesses planning capital expenditure longer to consider ways they can take advantage of the higher amount while it is available. The AIA will revert back to the original £200,000 limit on 1 January 2022. If the transitional rules come in as expected at the end of 2021, businesses with an accounting period straddling the calendar year end will still need to take particular care as relief can be unexpectedly restricted. That’s why planning ahead and consulting with your accountant before committing to any expensive investment in your business is advised.

Here to help

Our Construction & Property Incentives team is here to help at any stage, although involving us from the early stages in your planning process is always preferred. If you’re now considering making an expensive plant or machinery purchase for your business, or you’re undertaking a new build or refurbishment in commercial property and are keen to find out more about reliefs under the Structures and Building Allowance, please get in touch with me Michael Murray on Michael.Murray@jcca.co.uk for an initial chat, or another member of the Construction & Property Incentives Team.