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Annual Investment Allowance (AIA) – £1m Limit Extension

18th November 2020

HMRC have very recently announced that the AIA reduction from £1m to £200,000 will now take place from 1 January 2022, rather than 1 January 2021 as first planned.

The AIA, allows businesses to claim 100% tax relief on qualifying capital expenditure incurred. This is a very valuable relief to a business that have incurred a significant sum of capital expenditure in period (e.g. opened up a new commercial premises).

In our previous article on this matter we mentioned the transitional rules that will apply for businesses that will have an accounting period overlapping the change in the AIA. It is our understanding that these transitional rules will still apply when the change takes place in January 2022, which means careful planning is still required.

For instance, suppose a business had a 12 month year end of 30 June 2022, the available AIA for the whole period would be £600,000 (this is based on 6/12 of £1m and 6/12 of £200,000). However, the timing of the expenditure is critical as only £100,000 of expenditure incurred between 1 January 2022 and 30 June 2022 will be eligible for the AIA, despite an AIA of £600,000 being in place for the whole period.

If you are thinking of incurring significant capital expenditure for your business in the foreseeable future and you wish to plan for this in a tax effective manner then please let us know. With this announcement more time has now been awarded for businesses to plan for this expenditure in a tax efficient way that suits their particular needs.

Job Retention Bonus Scheme – Scrapped

Originally, businesses that kept staff on the payroll as at January 2021 and who had been originally furloughed were to receive a £1,000 grant for each employee this applied to (subject to other conditions being met). With the recent extension of the furlough scheme until March 2021 it was announced that this payment was to be delayed and reviewed.

It has now been announced the job retention scheme will be scrapped and replaced with a new retention incentive scheme at the appropriate time.

Get in touch for further advice and guidance. 

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