Annual Investment Allowance temporary increase from £200,000 to £1,000,000

Published on 10 January 2019

For two years, the Annual Investment Allowance (AIA) will be temporarily increased from £200,000 to £1m, the highest the AIA has ever been. Announced in the 2018 Autumn Budget (the Budget), this measure is designed to stimulate short-term business investment in the economy.

What is happening? 

Enhanced Capital Allowances (ECA) were announced in the Budget as due to be scrapped from 6 April 2020. Therefore, after this point, businesses will no longer be able to take advantage of tax reliefs when investing in plant and machinery contained in the government-managed Energy Technology List (ETL).

Why does it matter?

Between 1 January 2019 and 31 December 2021, businesses can invest up to £1m annually in qualifying “plant and machinery” assets and obtain 100% tax relief.

Plant or machinery is widely defined, it includes (but it is not limited to) the following:

  • computers, office furniture and equipment
  • machines and tools, vans, lorries and diggers
  • expenditure on altering land (as clarified in the Budget, expenditure spent on altering land will be treated as qualifying plant and machinery, so long as the alterations were for the purpose of installing qualifying plant and machinery).

Also, due to the discontinuance of the ECA scheme, businesses will no longer be able to claim for 100% tax relief on energy-efficient plant and machinery listed in the ETL (such as boilers, heating, ventilation and air conditioning, lighting, refrigeration equipment and solar thermal systems).

What action should you take?

If you are a business wanting to make any AIA-qualifying investments, take advantage of this opportunity to be as tax efficient as possible. Eligibility for the increased AIA hinges on when costs are incurred. You can only claim in the period you bought the item, therefore careful thought is needed in timing expenditure.

If your business’ accounting period straddles 1 January 2019, then your capital allowances may be subject to more complex calculations to apportion your qualifying expenditure.

If you are preparing to invest in energy-efficient plant and machinery you should check that it falls within the ETL specifications and take advantage of the ECA tax relief before the end of the 2019/20 tax year. 
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