Update; 12 month extension announced
On 12 November HM Treasury posted an infographic on their twitter account announcing that the £1m AIA allowance is to be retained for a further 12 months, to 31 December 2021. This is welcome news for business owners looking to invest in plant and machinery and makes a lot of sense from the perspective of seeking to stimulate economic activity as part of a national financial recovery effort. It’d be nice if we knew in advance that announcements were being planned rather than being left to stumble across them on Twitter, but hey ho.
Whilst the announcement takes the pressure off committing expenditure before the end of the year, business owners should nonetheless be considering how best to time and structure such expenditure to make sure tax relief is maximised and there are no nasty surprises.
Whilst the system gives relief incrementally through the writing down of cost at fixed percentages, there has been a variety of year one reliefs available, which for a little over a decade has taken the form of the Annual Investment Allowance or AIA.
This allowance, under which qualifying expenditure can attract immediate tax relief, has an upper annual limit which has been subject to change after change:
| April 2010 | £100,000 |
| April 2012 | £25,000 |
| January 2013 | £250,000 |
| April 2014 | £500,000 |
| January 2016 | £200,000 |
| January 2019 | £1,000,000 |
| *January 2021 | £200,000 |
The January 2021 change stems from the way in which the allowance limit is periodically altered. On occasion, section 51A of the Capital Allowance Act 2001 is itself changed, such as in 2016, since when it has read, “the maximum allowance is £200,000”.
On other occasions a temporary change is put in place, such as by Finance Act 2019, “during the period of 2 years beginning with 1 January 2019 […] section 51A […] has effect as if […] the amount specified as the maximum allowance were £1,000,000”.
That wording means the £1m allowance currently available to business owners will come to an end as Big Ben rings in the new year without Rishi Sunak (or anyone else for that matter) having to do anything.
When a 2020 autumn budget was still anticipated, the ATT made a call for the current threshold to be extended by at least a further year, but only a week or two after that call was made, the Treasury announced the budget was to be delayed until next spring and there would be only a review of government spending in the autumn.
So what does that mean for the allowance?
It is possible that the Chancellor could announce an extension at such a spending review. It is possible an extension could be announced in the fashion of COVID support measures, outside the usual norms of tax policy decision making. It is possible the Chancellor could let the £1m limit come to an end so he can announce an extension as a new ‘tax giveaway’ in the spring budget. Or it could be that there is no intention of renewing the threshold and it will simply be left to quietly revert to £200,000.
Like so many tax matters, the way in which business owners can achieve certainty of the allowance is to undertake their transaction during the current £1m period, meaning locking in their new plant and machinery purchases before the end of the current year.
There have always been transitional rules for those whose accounting year-end does not coincide with the change in rate date of 31 December 2020 and there are also rules dictating when expenditure on plant and machinery is ‘incurred’ for the purposes of claiming capital allowances. As such, those contemplating sizeable outlays on capital projects should take advice to ensure they do not miss out on any valuable relief.
If you’d like any more information or have any questions, please get in touch with your usual UHY adviser.
