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13 February 2021

Annual Investment Allowance

As part of the Government’s continued support for businesses through the pandemic, the Annual Investment Allowance (AIA) limit, which was previously increased from £200,000 to £1 million between January, 2019, and 31 December, 2020, has been extended further to stimulate investment in UK manufacturing until 1 January, 2022. This incentive gives businesses further control over their capital spending during the next year.

The AIA is a capital allowance which provides a taxpayer 100% tax relief on the cost of certain capital equipment purchased for use in a business or employment.

As with most things tax related, there are some finer details to consider. For example, a group of companies and connected companies can only take advantage of the AIA once (it can be allocated  as needed) and companies whose accounting year-end does not coincide with the change in rate date, will fall in line with transitional criteria. It is vital to review the timing of expenditure to ensure the relief is maximised.

Also, there is much legislation and case law to determine what qualifies for capital allowances.

It is anticipated that at the end of the extension, the rate will revert to £200k.

We would advise that this is a good time to consider how you can use this to best advantage. Please speak to your LB Group contact and we will be happy to support you.