With many businesses keen to access funding during the Coronavirus crisis, South West-based accountants Milsted Langdon are calling on companies to take advantage of the Annual Investment Allowance (AIA).
The AIA for capital allowances was increased to £1,000,000 of expenditure per annum from 1 January 2019. However, from 1 January 2021, this allowance will be scaled back down to its previous level of just £200,000.
By using the AIA, companies can claim against most qualifying plant and machinery expenditure, allowing them to deduct the full value of the investment from their profits – thus reducing their Corporation Tax bill.
Robert Brown, Tax Partner at Milsted Langdon’s Bristol office, said that those businesses hoping to make use of this relief before it runs out should consider accelerating qualifying expenditure, so that it falls within 2020:
‘Businesses need to carefully consider how they use this allowance, and when they make purchases, as the amount which can be claimed may be affected by their year-end profits, and when the investment is made.’ said Robert.
‘Companies with a financial year on 31 December can take advantage of the full amount, but where a company’s accounting period straddles 31 December 2020, the position is more complex, as the AIA limit is time-apportioned between the two varying rates – meaning they may not be able to take full advantage of the £1 million allowance.’
However, Robert added that the complexities of the scheme shouldn’t put businesses off making a claim, and that even in cases where a business’ year-end figures affected the amount that could be received, it may still be worthwhile seeking this tax relief.
‘The reality for many businesses at the moment is that sources of funding, such as bank loans or other forms of finance, are in short supply due to the ongoing global crisis, which is making lenders more cautious.
‘Tax reliefs such as the AIA are not reliant on a business’s credit score, and are eligible to a wide variety of businesses where they have qualifying expenditure. For those companies looking to diversify or pivot their business, this source of support could prove vital in helping them to invest in their future survival.’