Act fast for AIA tax relief
16 November 2020
Hirers are being advised that they should act quickly to ensure they take full advantage of tax relief available for the purchase of plant and equipment.
Currently the full cost of such purchases can be off set against tax through the Annual Investment Allowance (AIA), up to a maximum of £1m, following a temporary increase introduced by the government.
From 1 January, 2021, the AIA limit will reduce to £200,000 but for some businesses, the limit could be even lower, according to Paul Jennings, managing director of JCB Finance. He is urging customers to act quickly.
“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 £1m 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. Firms would receive £1m potential relief in 2020 and £200,000 potential relief in 2021.
Paul Jennings says that for companies with a year-end other than 31 December, things are more complicated. “Due to how the available AIA relief is calculated, for businesses whose financial year spans the calendar year, their effective AIA limit is restricted to significantly less than £200,000. That’s why it is important that companies act now to take full advantage of their AIA.”
Transitional rules mean that, in some cases, the maximum AIA for expenditure incurred in the three-month period from 1 January 2021 will be restricted to £50,000 without taking into account the level of expenditure in the nine months to 31 December 2020.