The government has extended a £1 million tax break for an extra year to help stimulate capital investment in UK manufacturing plant and machinery.
The Annual Investment Allowance (AIA) allows businesses to write off the full value of capital investments against taxable profits in the year of purchase. It is applicable to most assets, including machines and tools, vans and lorries (but not cars), office equipment, building fixtures and computers.
Tax relief is currently capped at £1 million but was due to revert to £200,000 on 1 January 2021. However, the government has extended the £1 million cap for an additional year to help companies to weather the COVID-19 pandemic and plan for the future.
Jesse Norman, Financial Secretary to HM Treasury, said the move will simplify taxes for the 99 per cent of businesses that invest up to £1 million on plant and machinery assets each year:
“It is vital that we support business through the difficult months ahead. Extending the Annual Investment Allowance’s £1 million cap will give businesses the confidence they need to invest into next year, helping them to grow whilst benefitting the wider economy too.”
The AIA has increased significantly over the last decade, rising from just £50,000 in 2010 to the £1 million cap announced in 2019.
Previous research has shown that many SMEs are unaware of the benefits of the AIA and are failing to take advantage as a result. According to a 2019 survey, the majority of SMEs (58 per cent) were unaware of the temporary boost to the AIA cap.