Tax Relief Update: Deadlines Extended for AIA & Super Deduction

Headlines

  • The Annual Investment Allowance of £1,000,000, which had been due to revert to £200,000 at the start of 2022, has been extended until the end of March 2023.
  • The Super deduction tax relief, which had been due to end in December 2022, will remain in place until March 2023.

Annual Investment Allowance (AIA)

What is the Annual Investment Allowance?

The AIA is a way to claim tax relief on many assets that your business buys. If your business buys a piece of equipment that qualifies for the AIA, you can deduct 100% of the cost of that asset from your business’s profit before you work out how much tax is due on that profit. If your business is registered for VAT, you claim the Annual investment allowance on the total cost of the asset less any VAT you can reclaim on that asset. If your business is not registered for VAT, you claim the AIA on the total cost of the asset. If you sell the item after claiming AIA you may need to pay tax.

AIA is available for companies, individuals and partnerships, where all the members are individuals.

What’s the update?

The government sets a limit for how much AIA a business can claim in a year, which means that if you buy assets costing more than the limit, you won’t be able to claim Annual Investment Allowance on all your assets. The limit was previously £200,000 but in January 2019 it was temporarily increased to £1,000,000. This new limit will now be in effect until March 2023.

Are all assets eligible for the AIA?

No, they’re not. You can claim AIA on most plant and machinery up to the AIA amount, but you cannot claim AIA on:

  • business cars
  • items you owned for another reason before you started using them in your business
  • items given to you or your business

You can only claim AIA in the period you bought the item. The date you bought it is:

  • when you signed the contract, if payment is due within less than 4 months
  • when payment’s due, if it’s due more than 4 months later.

If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.
AIA is not available for partnerships where one of the partners is a company or another partnership. If you’re a sole trader or a partner and you have more than one business or trade, each business usually gets an AIA. You only get one AIA if the businesses are both:

  • controlled by the same person
  • in the same premises or have similar activities

If 2 or more limited companies are controlled by the same person they only get one AIA between them. They can choose how to share the AIA.

Super-deduction

What is the Super-deduction?

As we have outlined, under the AIA, companies can currently deduct 100% (up to £1 million) of the cost of eligible assets from their taxable profits. Since the super-deduction was introduced in April 2021, companies paying corporation tax can deduct up to 130% of the cost of new assets from their taxable profits.

To support UK businesses and to encourage them to invest in growth (in order to help our economy after the impact of COVID) the government announced the super-deduction tax relief in 2021. It enables businesses to deduct up to 25p off tax bills for every £1 UK businesses spent on qualifying plant and machinery.

What’s the update?

Originally the super-deduction was going to be available between April 2021 and December 2022. This has now been extended until March 2023.

Which companies are entitled to claim the super-deduction?

The super-deduction is available to companies of all sizes, as long as they pay corporation tax, and the assets they are investing in are eligible.

The super-deduction is not available to individuals, sole traders or partnerships.

In addition to the super-deduction, the government has also announced that within Freeport tax sites, companies can access Enhanced Capital Allowances (ECA+), and that companies, individuals, and partnerships can access an increased level of Structures & Building Allowances (SBA+) until 30th

Which assets are eligible for the super-deduction?

According to HMRC, “Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.”

To qualify for the super-deduction, the assets must be new and unused, so second-hand equipment will not be eligible. 

Examples of eligible plant and machinery assets include, but are not limited to:

  • Solar panels
  • IT equipment and servers
  • Office desks and chairs
  • Tractors, lorries and vans (not cars)
  • Refrigeration units
  • Electric vehicle charge points
  • Foundry equipment
  • Compressors
  • Drills, ladders, cranes
  • Tools
  • Business mobile phones
  • Air conditioning.

The super-deduction first year allowance of 130% will apply on qualifying main rate plant and machinery like those listed above, but special rate and long life assets will only qualify for 50% first year allowance (FYA).

For more information on the super-deduction and eligible assets, visit our full article on the super-deduction

How to take advantage of the super-deduction

If you are running a company that pays corporation tax and want to take advantage of the super-deduction while it is available, get in touch with Bluestone Leasing. We can help you to understand how the super-deduction could benefit your business as well as how asset finance could fit into your future growth strategy.

Send us a message using the form below and we’ll be in touch ASAP.

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