From 1st January 2021, the Annual Investment Allowance for Capital Allowances will reduce from the current £1,000,000 to £200,000 per annum.
The Annual Investment Allowance (“AIA”) is the 100% rate of Capital Allowances for qualifying capital expenditure (typically plant and machinery).
Any additions falling within the AIA get full tax relief on the cost, additions not within the AIA result in a deduction for tax purposes at 18% / 6% of cost, depending on the type of expenditure.
Therefore, if your business is considering making a purchase that falls within the figures mentioned above after 31st December 2020, you may wish to consider bringing this forward to obtain the tax relief sooner. We would be happy to discuss the figures and application with you.
One thing to bear in mind is the timing of the purchase to ensure relief is obtained if it is brought forward. For Capital Allowances purposes expenditure is incurred on the date on which the obligation to pay becomes unconditional. Legally, a customer is required to pay for goods on delivery unless there is a special agreement as to terms of payment.
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