In November 2020 the Government announced an extension to the temporary increase in the AIA to £1 Million per year to 1st January 2022, when the limit reverts to its former £200,000 per year. So businesses need to act should they wish to take advantage.
The Annual Investment Allowance (AIA) 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 (e.g. plant and commercial vehicles) per year is 100% allowable against taxable profits of a business, deductible in the year that you buy them. This accelerates the tax relief rather than the tiered writing down allowances (WDA) normally applied over several years.
£1 million per year tax relief is available for qualifying expenditure – but the exact amount you can claim is based on eligibility and the timing of the purchase in relation to your financial/tax year end.
If you have a 31st December year end, then the position is straightforward, as your December 2021 year end will coincide exactly with the decrease in the limit. Plainly speaking you have £1 million potential relief throughout 2021.
But what if you don’t have a December year end?
Things become much more complicated! Due to how the available AIA relief is calculated, for businesses whose financial year spans the calendar year (31st March or 5th April for example), their effective AIA limit for their financial year is calculated by aggregating the time-apportioned amount of each of the £1m and the £200,000 limits.
Example: 31st March year end
A business with a 31st March year end will have a chargeable period which runs from 1st April 2021 to 31st March 2022. The overall AIA available to them for this period will be £800,000, being the total of the following two amounts:
However, whether or not the full £800,000 limit is available will depend on when the company incurs its qualifying expenditure within the year to 31st March 2022.
Claim the AIA against qualifying assets placed on Hire Purchase (HP) – just as if you had paid cash. You can enter into a Hire Purchase agreement for qualifying assets and benefit from the relief prior to all the payments of the agreement being made, in addition to the normal cash flow benefits of using Hire Purchase
What should you do today?
Business are also urged to check out the lead times on new orders of new plant, machinery and commercial vehicles because the relief is only available in the financial year that you make the purchase. Get the timing of your order wrong and could be costly!
The clock is ticking and the increased AIA limit to £1 million albeit welcome, is only temporary and the window of opportunity is shorter for some businesses than others. Speak to your supplying dealer or click here to find your local JCB Finance Relationship Manager so that you have the best opportunity to maximise on the tax relief and benefit from a Hire Purchase payment profile that matches the needs of your business. Alternatively, please click below to request a call back.
JCB Finance is authorised and regulated by the Financial Conduct Authority. Firm reference number: 708332). The Mill, Rocester, Staffordshire ST14 5JW. JCB Finance is not a tax or financial advisor - always seek advice from your accountant or finance director, because every business' circumstances are different. Businesses should not make investment decisions purely on a tax basis - there should be a compelling business case for the investment. UK business users only, terms apply.