Annual Investment Allowance (AIA) is due to drop

From the 1st January 2021, the Annual Investment Allowance (AIA) is set to drop back from the temporary increase of £1m to £200k.

Do not risk losing out on a much-needed quick relief for your Capital Expenditure.

Businesses that have invested in plant & machinery need to plan their expenditure accordingly and ensure they maximise the availability of the enhanced AIA up to 31st December 2020.

Reviewing your Capital Allowances with us by November 31st will insure you benefit from any immediate relief you are due in time for your filing date.

What can you claim?

Claims can come from the purchase expenditure of a property (generally worked out as a percentage of the purchase price, see more details here), plant and machinery installed when improving your property (e.g. electrics, fire alarms, air conditioning, sanitaryware, etc.), as well as items that are associated with the core operations of your business. For example, Hotel & Furnished Holiday Let owners investing money on decorative items to make their property more appealing.

There are a wide range of items that qualify for Capital Allowance Relief and it is always wise to speak with a specialist Capital Allowance adviser to maximise your relief whilst ensuring compliance with HMRC’s strict guidelines. Failure to seek professional advice could result in your claim being rejected.

Calculating AIA

Tocalculate the AIA that could be available, we first need to consider your year-end.Here are two examples. The first example is for a year-end of December 31st2020, and the second is for a year-end of 31st March 2021.

First example:

12 months pre 31st December 2020:                                                                                Full AIA

Total: £1,000,000.00

Second example:

9 Months pre 31st December 2020:  £1,000,000 x 9/12                                            £750,000.00  

3 Months post 31st December 2021: £200,000 x 3/12.                                                £50,000.00  

Total: £800,000

So, for companies with a year ending 31st March 2021, the AIA limit for this period will be £800,000.

Even though the AIA has reduced from £1,000,000 to £200,000, a business would only be entitled to AIA of £50,000 on expenditure in the 3-month period from 1st January 2021 to 31st March 2021.

Businesses with a year-end of 31st December are not affected by these transitional rules.

In summary, even though the AIA reverts to £200,000 on 1 January 2021, a business that doesn’t have a 31st December year end, may not receive the maximum AIA of £200,000 for qualifying expenditure incurred in 2021. It is important to bear this in mind when making capital expenditure. With forward planning any adverse effect can be minimised, for example, move your year-end, or delay/bring forward expenditure, etc.

Correctly timing your capital expenditure could potentially save you many thousands on your tax bill.

It takes less than 5 minutes to discover what Capital Allowances you could be entitled to claim against your capital expenditure, do not miss out!

Call STax today to maximise relief on your property.