The ATT has warned businesses which are considering the purchase of capital equipment to act quickly or risk missing out when the annual investment allowance reverts back to £200m from 1 January 2021.
Although the timing of the purchase may make no difference in the long run to the amount of expenditure which qualifies for tax relief, it can make an enormous difference in terms of how quickly the relief is received and the contribution the relief makes to the cash flow of businesses.
For example, for a company with a financial year ending on 31 March 2021 the maximum AIA available will be time apportioned:
1 April 2020 to 31 December 2020
9/12 × £1,000,000
£750,000
1 January 2021 to 31 March 2021
3/12 × £200,000
£50,000
£800,000
The maximum AIA available for the year ended 31 March 2021 is £800,000 but there is also a separate AIA limit for the three months ended 31 March 2021 based on the result for the notional period. The AIA available for the three months ended 31 March 2021 is £50,000.
This means that if the company incurs no qualifying expenditure in the period 1 April 2020 to 31 December 2020 and £150,000 for the remainder of the year, the maximum AIA available will be £50,000.
The ATT has warned businesses which are considering the purchase of capital equipment to act quickly or risk missing out when the annual investment allowance reverts back to £200m from 1 January 2021.
Although the timing of the purchase may make no difference in the long run to the amount of expenditure which qualifies for tax relief, it can make an enormous difference in terms of how quickly the relief is received and the contribution the relief makes to the cash flow of businesses.
For example, for a company with a financial year ending on 31 March 2021 the maximum AIA available will be time apportioned:
1 April 2020 to 31 December 2020
9/12 × £1,000,000
£750,000
1 January 2021 to 31 March 2021
3/12 × £200,000
£50,000
£800,000
The maximum AIA available for the year ended 31 March 2021 is £800,000 but there is also a separate AIA limit for the three months ended 31 March 2021 based on the result for the notional period. The AIA available for the three months ended 31 March 2021 is £50,000.
This means that if the company incurs no qualifying expenditure in the period 1 April 2020 to 31 December 2020 and £150,000 for the remainder of the year, the maximum AIA available will be £50,000.
