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Business Tax  •  capital allowances  •  Tax Planning

£1m capital allowances extension available for another 12 months

By RJP LLP on 18 November 2020

If your business is making ongoing investments to adjust to the Covid pandemic, you may be cheered to learn that the current £1m Annual Investment Allowance (AIA) will be available for another year.

The increased AIA allowance was due to finish on 31 December 2020 and return to its previous level of £200,000, but will now continue for another calendar year until December 2021. This means that  businesses that spend up to £1m on assets that  qualify as plant and machinery, will benefit from full tax relief in the year of purchase, rather than receiving tax relief spread over a number of years.

Key details and dates to remember

  • AIA has been £1,000,000 from 1 January 2019 and will now apply until 31 December 2021.
  • AIA may return to £200,000 on 1 January 2022.

What counts as capital expenditure?

Examples of assets that qualify as plant and machinery and would therefore be eligible for AIA includes:

  • Office furniture
  • IT equipment
  • Certain fixtures including fitted kitchens, bathroom suites, fire alarm and CCTV systems;
  • Vans;
  • Integral building features e.g. electrics, plumbing, air conditioning, heating;
  • Safety fixtures and adaptations to make a business Covid safe;

For companies that are grouped, the AIA allowance of £1m needs to be shared amongst the group, but it can be allocated in the way that is most advantageous to the group. If total expenditure exceeds the AIA , capital allowances are available on the balance at the usual writing down allowance rates of 18% and 6%, depending on the nature of the expenditure.

If you would like some advice on claiming for capital allowances, please contact partners@rjp.co.uk.

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