In a previous article I explained how the expected drop in Annual Investment Allowance (AIA) from £1 million to £200,000 on 1 January 2021 has a rather nasty “cliff-edge” effect which can catch businesses out in terms of the timing of buying new equipment and vehicles.
AIA is the annual allowance a business has on which it can obtain full tax relief in the year of purchase of qualifying equipment.
Succumbing to pressure from various professional and representative bodies, the Chancellor has now very sensibly announced that the temporary £1 million limit will continue for a further year, so the drop back to the standard £200,000 level will now take effect from 1 January 2022.
This is really good news, in particular for small and medium sized businesses that want to make use of the extended allowance but because of Covid-19 are not in a sufficiently liquid position to be able to make those investments. The extension gives them some breathing space and the ability to invest in 2021 instead without having to suffer a much higher tax bill purely because of the difference in timing.
To discuss your business situation, the timing of capital spend and how it impacts your Income Tax or Corporation Tax bill, please contact James Geary on 01242 776000 or email firstname.lastname@example.org.
Read James’ previous article titled ‘Annual Investment Allowance – A Nasty Trap Awaits!’ which was published 30 September 2020.