The government has recently announced that the current Annual Investment Allowance (AIA) of £1 million will now be extended for a further 12 months, until 31 December 2021.
AIA is the tax relief available to UK businesses which is claimed against the purchase of business equipment, primarily plant and machinery. AIA can be claimed by companies, sole traders or partnerships. It is currently available at a rate of £1 million but was due to revert back to £200,000 from 1 January 2021.
The extension will be a welcomed incentive, which is hoped will encourage businesses to further invest in plant and machinery. It is hoped that (particularly during this uncertain period) the move will help stimulate investment in UK manufacturing and other sectors to support business confidence.
By extending the allowance, businesses will be able to plan their capital expenditure over the next year and make sure that they maximise the 100% tax relief available. Relief is available for 'qualifying business expenses' which basically means it is available for expenditure on most plant and machinery, with the main exception being expenditure on cars.
It is also worth pointing out that groups of companies are only entitled to one AIA between them. For those companies looking to make multiple purchases, reviewing the expenditure of the whole group could be a worthwhile exercise, which will help to determine how best to use the allowance.
More information can be found on the Government website.
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