Professional Firms Insight: Annual Investment Allowance to remain at £1 million throughout 2021

The Annual Investment Allowance (AIA) gives businesses tax relief for 100% of the cost of qualifying capital expenditure in the year it is incurred.

The AIA increased from £200,000 to £1 million on 1 January 2019. It was due to fall back to £200,000 from 1 January 2021, but the government has now announced that the £1 million limit will remain in place for a further year, until 31 December 2021.

Expenditure on the acquisition of “plant and machinery” can be covered by the AIA, and those firms that are expecting in 2021 to be spending significant sums on equipment, or fit out projects, can expect to benefit from this policy.

Andrew Constable, Tax Partner, said: “We know that many professional firms are currently in the midst of, or planning, significant capital expenditure projects. A lot of these firms are looking to invest heavily in IT equipment to support the new ways of working that look to be here to stay. Others may be moving to new premises, or reconfiguring existing ones, and spending a lot of money on fit-out costs. These firms will be incurring a lot of qualifying expenditure; previously those firms would have had to incur that expenditure before the end of 2020 in order to benefit from the £1 million Annual Investment Allowance, and this may not have been possible. The fact that the higher limit will remain in place throughout 2021 will mean that more expenditure will qualify for a full in-year tax deduction, and this will help firms to invest for the future.”

If you have any queries as to what expenditure can be covered by the AIA, or what this means more broadly, please contact a member of the team.