In the 2018 budget a temporary increase to the Annual Investment Allowance (AIA) was announced. The ATT has requested an amendment to the draft legislation to allow SME businesses who are disadvantaged in periods which straddle 1 January 2021 to opt out of the increase.

The proposal is to temporarily increase the AIA from £200,000 per year to £1m per year for two years from 1 January 2019. Changes to AIA limits can result in complex calculations and in this case, inequitable results for some businesses with capital expenditure below the current AIA limit. The ATT have identified that where a business’ accounting period straddles 1 January 2021 they may be disadvantaged if they do not time their expenditure correctly.

For example:

A company with a 31 March 2021 year end will be entitled to AIA’s of £800,000 if all expenditure is incurred before 31 December 2020. If, instead, the expenditure takes place in the three months to 31 March, the limit will be just £50,000. Under current rules the company would have a limit of £200,000 for the entire accounting period, regardless of the timing of the spend.

The ATT has requested that the draft legislation is amended to allow business affected by this to opt out of the increase in the limit. This will both remove the need for affected businesses to have to plan their capital expenditure and assist HMRC in policing the new rules.

Links to our guides:

Annual Investment Allowance (AIA) 

AIA & WDA: rules where there is a change of rate

Finance Act 2018: tax update and rolling planner

External link:

ATT Press release: Business could benefit by an opt-out from £1 million capital allowances relief

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