Companies are being urged to act quickly to ensure they take full advantage of tax relief for the purchase of plant and equipment.
Currently, the full cost of such purchases can be offset against tax through the Annual Investment Allowance (AIA), up to a maximum of £1 million, following a temporary increase introduced by the government.
From January 1, 2021, the AIA limit will reduce to £200,000 but for some businesses, the limit could be even lower – costing some firms hundreds of thousands of pounds in reduced tax relief.
Now Paul Jennings, managing director of JCB Finance, is urging customers to take full advantage of their AIA for plant machinery before it’s too late.
He said:
While the AIA is due to revert to £200,000 on January 1, 2021, businesses whose year-end is not December 31 could see their AIA allowance drop even lower, in some cases to as little as £50,000 if they don’t time their purchases right.
“The temporary increase to £1 million is only available for qualifying expenditure incurred in 2019 and 2020.
“If companies have a December 31 year end, then the position is straightforward, as a December 2020 year end will coincide exactly with the decrease in the limit.
“Put simply, firms would receive £1 million potential relief in 2020 and £200,000 potential relief in 2021.
For companies with a year-end other than December 31, things become much more complicated. Due to how the available AIA relief is calculated, for businesses whose financial year spans the calendar year, their effective AIA limit restricted to significantly less than £200,000.
“That’s why it is important that companies act now to take full advantage of their AIA,” he concluded.
