Budget 2021: Annual Investment Allowance

Rishi Sunak today announced an extension to the current £1m Annual Investment Allowance. 

Where businesses invest in qualifying capital assets, capital allowances are available to provide tax relief on the expenditure incurred.

100% tax relief of up to £1m is currently available for expenditure on plant and machinery and integral features under the Annual Investment Allowance (or “AIA”).

The AIA limit has fluctuated over the past few years. On 1 January 2019, the limit was temporarily increased from £200,000 to the current £1,000,000 until 31 December 2020. In response to the COVID-19 pandemic, it was extended again until 31 December 2021 and now as part of the Autumn 2021 Budget, has been held at this level until 31 March 2023, so a further 15 months, when, if nothing changes, it will return to £200,000.

A curious point is that the extended time limit coincides with the withdrawal of the more beneficial ‘super deduction’, which provides an immediate first year allowance (“FYA”) of up to 130% of qualifying spend. The super deduction is only available to companies, whereas the AIA is generally available to all businesses. It will be interesting to see whether the government will stick to this current extension and withdraw two highly beneficial tax reliefs, both intended to stimulate investment, at the same time.

Join our Budget question time – Connecting the dots webinar on Friday 29 October, where our panel of tax and finance experts will be on hand to answer your Budget related questions.