Annual Investment Allowance £1m cap extended for a year

The Treasury has confirmed that the annual investment allowance (AIA), designed to stimulate investment in UK manufacturing, is to be extended further for an additional year in a bid to counter the current downturn in activity

Businesses, including manufacturing firms, can continue to claim up to £1m in same-year tax relief through the AIA for capital investments in plant and machinery assets until 1 January 2022.

The extension of the temporary £1m cap was originally due to revert to £200,000 on 1 January 2021.

Jesse Norman, financial secretary to the Treasury, said: ‘It is vital that we support business through the difficult months ahead.

‘Extending the AIA’s £1m cap will give businesses the confidence they need to invest into next year, helping them to grow whilst benefitting the wider economy too.’

Chris Sanger, EY head of tax policy, said: ‘The AIA is somewhat of a “yo-yo” allowance, given how often it is increased and reduced, with each change intended to accelerate investment. 

‘Today’s announcement will ensure that more investment can qualify and also that those investments which might not have made the year-end deadline, perhaps due to Covid or indeed Brexit constraints, will qualify, increasing the likelihood of them going ahead.

‘This will be particularly helpful for UK manufacturing at a time when, thanks to the announcement of a vaccine, business confidence is returning.’

BDO partner Steve Watts agreed many manufacturers have gone into survival mode in 2020 amid Covid-19 and Brexit uncertainty, and have had to defer investments in plant and machinery assets.

Watts said: ‘Our most recent survey conducted with Make UK revealed a worrying decline in investment intentions among manufacturers, which does not bode well for an industry seeking to boost its productivity and compete in the global market.

‘The one year extension to the AIA cap of £1m to 1 January 2022 is therefore hugely welcome and is aimed at encouraging investment in plant and machinery during these uncertain times.

‘However, this is yet another short term measure when the industry is crying out for a comprehensive government strategy which provides greater certainty and allows for longer term investment planning.’

Further reading:

Accountancy Daily roundup: Treasury releases tax policy announcements

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