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2022 / 2023 Edition

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Firms urged to act now to take advantage of tax relief

Paul Jennings

JCB Finance urge companies to take full advantage of temporary increase in Annual Investment Allowance

JCB Finance are urging companies to act quickly to ensure they take full advantage of tax relief for the purchase of plant and equipment. Currently, the full cost of such purchases can be offset against tax through the Annual Investment Allowance (AIA), up to a maximum of £1 million, following a temporary increase introduced by the Government. 

From 1 January 2021, however, the AIA limit will reduce to £200,000, and for some businesses the limit could be even lower – costing some firms hundreds of thousands of pounds in reduced tax relief.

Paul Jennings (pictured), managing director of JCB Finance, is urging customers to take full advantage of their AIA before it is too late. He said: ‘While the AIA is due to revert to £200,000 on 1 January 2021, businesses whose year-end is not 31 December could see their AIA allowance drop even lower, in some cases to as little as £50,000, if they don’t time their purchases right.

‘The temporary increase to £1 million is only available for qualifying expenditure incurred in 2019 and 2020. If companies have a 31 December year end, then the position is straightforward, as a December 2020 year-end will coincide exactly with the decrease in the limit. Put simply, firms would receive £1 million potential relief in 2020 and £200,000 potential relief in 2021,’ he explained. 

‘For companies with a year-end other than 31 December, things become much more complicated. Due to how the available AIA relief is calculated, for businesses whose financial year spans the calendar year, their effective AIA limit restricted to significantly less than £200,000. That’s why it is important that companies act now to take full advantage of their AIA.’

The Annual Investment Allowance is a type of capital tax allowance that offers 100% tax relief on qualifying capital expenditure in the year of purchase. Expenditure on business assets, such as plant and commercial vehicles, per year is 100% allowable against taxable profits of a business, deductible in the year that they are bought. This accelerates the tax relief rather than the tiered writing-down allowances (WDA) normally applied over several years.

In the Autumn 2018 Budget, the Government announced a temporary increase in the AIA to £1 million per year from 1 January 2019, reverting to its former £200,000 per year from 1 January 2021.

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