The AIA (currently set at £1m per year), is the amount of capital expenditure on qualifying plant & machinery that a company can claim 100% Capital Allowances on, giving full tax relief in the year of purchase. Expenditure that doesn’t qualify for AIA gains relief much more slowly, using writing down allowances at the rate of either 18% or 6% per annum (depending on the type of expenditure) on a reducing balance basis.
The £1m limit was a temporary measure, designed to assist with economic stimulus. Given the virus crisis, it is possible that the Government will choose to extend this but, at the time of writing, there have been no announcements.
As it stands currently, the AIA is due to fall to its “normal” level of £200,000 from 1 January. Businesses may therefore like to consider if there are any plant and machinery purchases that should be brought forward in order to gain full relief.
Businesses without a 31 December year end should bear in mind that they will receive a time apportioned AIA, so a company with a 31 March 2021 year end will receive £800,000 (£1,000,000 x 9/12 plus £200,000 x 3/12). However, the period after 31 December is restricted to the time apportioned part of the £200,000, so be extra careful; in our example, the maximum qualifying expenditure in the period 1 January 2021 to 31 March 2021 would be £50,000 (being £200,000 x 3/12).
AIA may also have to be shared across a group, or with other related companies.
For more information please contact Robert Leggett.
