Don’t miss out on tax relief for capital expenditure in your business

As hopes increase that the economy is returning to pre-pandemic levels, is now the time for your business to begin replacing old equipment and commercial vehicles?


You will recall from our article last year that the Treasury announced a temporary extension to the £1 million cap for the Annual Investment Allowance (AIA) until 1 January 2022.

This means that a business will be entitled to a 100% allowance on eligible expenditure up to 31 December 2021 subject to the £1 million cap.  Whilst this deadline may still seem far away, there are actually less than four months remaining before the AIA reverts back to £200,000.

It is crucial to be aware that the actual AIA entitlement is determined by when in the accounting period the expenditure was incurred.  If a business with a March 2022 year end purchases an item of machinery costing £500,000 on 30 September 2021, it should qualify for full AIA relief.  If the purchase is instead made on 1 March 2022, the claim for AIA will be restricted to the AIA available for the relevant proportion of the accounting period.  For 1 January 2022 to 31 March 2022, the available AIA will be £50,000 (£200,000/12 x 3).

If an asset is acquired on hire purchase terms then further complications arise in the timing of reliefs.

For unincorporated businesses, expenditure not covered by the AIA is subject to the usual writing down allowances of 18% and 6%.  Companies may be able to take advantage of the new super-deduction and 50% first year allowance.

This is certainly an area of tax which can be complicated and benefits hugely from planning to maximise tax savings.

If you have any queries or would like to discuss this further to ensure you maximise this relief, please do not hesitate to contact your Kilsby and Williams team member on 01633 810081.