Annual Investment Allowance extension

Autumn Budget 2021: Annual Investment Allowance extension

Jane Mackay, Partner, Head of Tax
27/10/2021
Annual Investment Allowance extension

As part of the autumn Budget 2021, the Chancellor, Rishi Sunak, announced an extension of the temporary increase to £1 million of the Annual Investment Allowance to 31 March 2023. Previously it had been due to return to the permanent level of £200,000 after 31 December 2021.

The AIA is a 100% capital allowance for qualifying expenditure on plant and machinery. 

Most businesses are able to claim the AIA in respect of their expenditure on plant and machinery, which would otherwise be eligible for another type of capital allowance known as a writing down allowance (WDA), at either the main (18%) or special rates (6%). The AIA, therefore, allows businesses to claim 100% tax relief in the year expenditure is incurred. Under the normal plant and machinery allowances, the tax relief would otherwise be deferred to future tax periods.  

The 100% AIA is only available in the period in which the expenditure is incurred, and is not available for historic claims (unlike writing down allowances that can be claimed providing you still own the asset). AIA is not available for certain capital expenditure on plant and machinery, including expenditure on cars.

The extension to the AIA is additional to the super deduction announced in the spring Budget 2021, which provided 130% relief for certain qualifying expenditure.

If the super deduction is available, this is generally likely to result in higher tax savings than the AIA, although there are some unusual computational rules for expenditure incurred in a period straddling 31 March 2023, the date the super deduction ends.

Where the super deduction is not available, normally businesses will want to claim the AIA because of the cashflow advantage it can provide. However, with the rate of corporate tax increasing to 25% from 1 April 2023, companies should think about whether they are better off overall by not claiming AIA and instead claiming writing down allowances. Writing down allowances can defer the tax relief into periods where it will be claimed at the higher 25% corporate tax rates. 

To make sure you are claiming the capital allowances you are entitled to, please refer to our helpful guide

Autumn Budget 2021

What do the announcements mean for you and your organisation?

Insights

Chancellor, Rishi Sunak, announced a new capital allowance ‘super-deduction’ and first year allowance.
Chancellor announces a number of significant changes to the capital allowances system.
Can companies claim capital expenditure when they move premises?
Chancellor, Rishi Sunak, announced a new capital allowance ‘super-deduction’ and first year allowance.
Chancellor announces a number of significant changes to the capital allowances system.
Can companies claim capital expenditure when they move premises?

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Jane Mackay
Jane Mackay
Partner, Head of Tax
Thames Valley