There is good news for those businesses who are looking to expand their business and invest in the assets of their companies. The government has announced that the temporary Annual Investment Allowance (AIA) cap will be extended for a further 12 months until 1 January 2022.

Annual Investment Allowance (AIA) could be claimed on plant and machinery, Integral features, and fixtures

Please visit our Tax Services page to know about our tax services.

Plant and machinery include:

• items that you keep to use in your business, including cars
• costs of demolishing plant and machinery
• parts of a building considered integral, known as ‘integral features’
• some fixtures, for example, fitted kitchens or bathroom suites
• alterations to a building to install other plant and machinery – this does not include repairs
• Claim repairs as business expenses if you’re a sole trader or partner – deduct from your profits as a business cost if you’re a limited company.

Integral features include:

• lifts, escalators, and moving walkways
• space and water heating systems
• air-conditioning and air cooling systems
• hot and cold water systems (but not toilet and kitchen facilities)
• electrical systems, including lighting systems
• external solar shading

Fixtures include:

• fitted kitchens
• bathroom suites
• fire alarm and CCTV systems

The government says that this move is intended to boost confidence as companies look to weather the pandemic and plan for the future. This should also encourage investment in qualifying plants and machinery over the next 12 months.

The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery to be deducted from your profits before tax. The relief is normally capped at £200,000 per annum but was temporarily increased to £1 million for a 2-year period from 1 January 2019 to 31 December 2020.

This increased temporary limit is a generous allowance and should cover the annual spending of most small and medium-sized businesses. The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures, and computers. The AIA does not apply to cars.

The extension in the temporary limit means that businesses thinking of incurring large items of capital expenditure will now have additional time to consider their options during these uncertain times. There are complex transitional rules so the timing of any purchase should be carefully considered.

If you would like to know more about it, feel free to contact us.