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Extension of £1m AIA

Extension of £1m AIA


We welcome the announcement that the Annual Investment Limit (AIA) temporary increase to £1m has been extended by 12 months, and we hope this will support businesses in their efforts to recover from the Covid-19 pandemic and build for the future.

The Annual Investment Allowance is a valuable tax relief that allows businesses to claim 100% tax relief for spending on plant and machinery in the year of expenditure, up to a certain limit.

That limit has varied considerably since the introduction of the relief in 2008, but a temporary increase from £200k to £1m was in place for the period 1 January 2019 to 31 December 2020. This increase has now been extended to 31 December 2021.

Whenever the threshold changes there are prescriptive rules setting out how much is available to businesses whose year end crosses the date of change and they are usually particularly penal when there is a decrease in the AIA limit. These rules mean that businesses making large capital purchases in December 2020 would have received significantly more tax relief than those who delayed the purchase until 2021. For example, a business with a March 2021 year end would be entitled to a total allowance of over £800k for the whole period but only £49k of this would be available for any expenditure incurred after 1 January 2021. 

Given the continuing uncertainty and difficult trading conditions for many industries, which look set to persist until at least early 2021, we are glad that the government has removed the pressure to invest in plant and machinery in 2020 by extending the £1m AIA limit to 31 December 2021. 

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