£1 million AIA limit extended: A boost for businesses investing in plant & machinery

£1 million AIA limit extended: A boost for businesses investing in plant & machinery

In the recent mini-budget it was announced that the government will keep the Annual Investment Allowance (AIA) limit at £1 million indefinitely and the proposed reduction will not occur.

The AIA gives a 100% write-off on certain types of plant and machinery, including cars with zero emissions, up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023 which will now not take place.

Furthermore, up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’ which you can find out more about here.

Here, our Senior Corporate Tax Manager, Paul Woodward, explains how you could benefit from utilising the Annual Investment Allowance and what assets can qualify.

Annual Investment Allowance the basics…

The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses.

It allows the total cost of plant or machinery purchases to be offset against your company’s taxable profit for the year. Effectively, this results in a saving on the cost of plant and machinery purchase of 19% at the current Corporation Tax rate.

Where a business has an accounting period that spans the operative date of the increase, transitional rules will apply (see examples below).

Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.

Please note that only one claim for AIA can be used in a group of companies or individual companies under common control.

An example

Joe buys a new computer for his business costing £1,500. The profits for that year came to £20,000. He can claim the Annual Investment Allowance against the cost of the computer, so will pay tax and class 4 NI on £18,500 (£20,000-£1,500 = £18,500) rather than the full £20,000.

Who can claim?

The allowance is open to businesses whose activity includes one of the following criteria: trading; commercial property letting; office or employment; or leasing.

The only business structures, which are not eligible for the AIA are mixed partnerships (that is, partnerships comprised of both individuals and companies) and trustees.

Paul says…

“With many businesses putting spending and development projects on hold in the current climate, it is a welcome announcement that the £1,000,000 limit for the AIA will be held indefinitely. This provides certainty for businesses when making spending decisions.”

What could qualify under AIA?

Investments in plant and machinery such as the following could qualify…

Computers and all kinds of office furniture and equipment Vans, lorries, trucks, cranes and diggers Integral features’ of a building or structure
Other building fixtures, eg. shop fittings, kitchen & bathroom fittings All kinds of business machines, eg. printing presses, lathes & tooling machines Tractors, combine harvesters and other agricultural machinery
Gaming machines, amusement park rides Computerised / computer aided machinery, including robotic machines Wind turbines and fibre optic cabling.

We can help

If you are considering investing in plant or machinery we can assist with claiming Annual Investment Allowance tax relief, including:

  • Checking that you are benefiting from the maximum reliefs available to you
  • Reviewing your eligibility to claim
  • Calculating relief available during transitional periods
  • Planning and cash flow management for significant asset purchases

Please contact our tax team to arrange a free, no obligation consultation.

1920 1280 Rouse Partners

Paul Woodward

With more than 20 years in tax, Paul provides tax compliance and advisory services to clients, and specialises in R&D and capital allowance claims. See more

All stories by : Paul Woodward

This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

Let's stay connected

Sign up to our quarterly e-newsletters, with the latest tax and industry updates from our team.

Still undecided? See our most recent newsletter.

Privacy Preferences

This website uses cookies that help it function and to help us provide an improved user experience.

Necessary cookies: These enable core functionality such as security and accessibility. You may disable these by changing your browser settings, but this may affect how this website functions.

Performance cookies: Below you can change your privacy preferences for performance cookies which help us to review and improve our website experience.

 
We use cookies to help our website function and to improve your experience. Please confirm your preferences and/or agree to our use of cookies.