Businesses encouraged to use up to £1m of tax relief before it runs out

With many businesses keen to access funding to support them during the current crisis, London-based accountants Grunberg & Co is calling on companies to take advantage ofthe Annual Investment Allowance (AIA).

The AIA for capital allowances was increased to £1,000,000 per annum for expenditure from 1 January 2019. However, from 1 January 2021, this generous allowance will be scaled back down to its previous level of just £200,000.

By using the AIA, companies can claim against most qualifying plant and machinery expenditure allowing them to deduct the full value of the investment from their profits, thus reducing their Corporation Tax bill.

Robert Bean, Managing Partner at Grunberg & Co, said that those businesses hoping to make use of this relief before it runs out should consider accelerating qualifying expenditure so that it falls within 2020.

“Businesses need to carefully consider how they use this allowance and when they make purchases as how much can be claimed may be affected by their year-end and when the investment is made,” said Robert.

“Companies with a financial year on 31 December can take advantage of the full amount, but where a company’s accounting period straddles 31 December 2020, the position is more complex as the AIA limit is time apportioned between the two varying rates, meaning they may not be able to take full advantage of the £1m allowance.”

However, Robert added that the complexities of the scheme shouldn’t put businesses off making a claim and that even in cases where a business’s year-end affected the amount that could be received, it may still be worthwhile seeking this tax relief.

“The reality for many businesses at the moment is that sources of funding, such as bank loans or other forms of finance, are in short supply due to the ongoing crisis that the UK faces, which is making lenders more cautious,” said Robert.

“Tax reliefs such as the AIA are not reliant on a business’s credit score and are eligible to a wide variety of businesses where they have qualifying expenditure. For those businesses that are looking to diversify or pivot their business this source of support could prove vital in helping them to invest in their future survival.”