The enhanced Annual Investment Allowance (AIA) and super-deduction come to an end on 31 March 2023. What might the government’s future plans for capital allowances be?
With the current capital allowances regime less favourable than that of some other countries, the government has put various options on the table. These include increasing the permanent level of the AIA; increasing the rates of writing down allowances; introducing general first-year allowances for qualifying expenditure on plant and machinery; introducing an additional first-year allowance or introducing permanent full expensing.
The proposal as regards the AIA is to increase it permanently to £500,000. As you know, the AIA allows most businesses to deduct the full amount of qualifying expenditure, up to a set level, to arrive at taxable profits. It can be claimed on most plant and machinery expenditure, but not expenditure on cars.
Capital allowances: it’s all about timing
It’s worth noting that the AIA is currently due to drop back to £200,000 from 1 April 2023. If your business has an accounting period that straddles this date, you may need to consider the impact of the transitional rules that will apply. In such cases, the timing of capital expenditure will be particularly important. To effect maximum relief, expenditure will be best incurred before 31 March 2023, and in some circumstances, a claim to the super-deduction (available only to incorporated businesses) may be preferable. If you are looking at significant capital expenditure, please talk to us about the most tax-efficient way to achieve it.
Planning is always essential to get the optimal result when investing in your business. We should be delighted to guide you through any forthcoming change to the rules on capital allowances or help you maximise the opportunities still available under the current temporary provisions.