Today’s Tax Tuesday, on the subject of capital expenditure, may seem incongruous for many businesses in 2020, particularly as we are about go back into a national lockdown.

Nevertheless, for those clients and contacts who might be contemplating significant investment in “plant and equipment” (possibly after an enforced deferral of essential expenditure, perhaps), please be aware that the AIA (the Annual Investment Allowance) which currently provides tax relief on up to £1m of eligible capital expenditure in a year, is due to drop back down to £200,000 for purchases from 1 January 2021.

In the absence of a Budget this year there is every chance that the higher limit will not be addressed or refreshed.

The tax cashflow difference of major qualifying spend before 1 January, compared to the same qualifying spend shortly afterwards would be significant. Those amounts of expenditure which lose the immediate 100% relief will achieve a maximum of just 18% initial relief and then 18% per annum on a “reducing balance” basis going forward.

It will take no less than eleven years for expenditure which misses out on the AIA to benefit from tax relief on (just) over 90% of the cost, as the reducing balance basis dribbles down and down.

How can we help?

If businesses do have capex plans which they need to try and accelerate, please talk to your relationship principal here, or Tax Partner Chris Barrington by email here or by telephone on 0161 905 1616, about what minimum steps needs to be taken to qualify before the portcullis comes down.

 

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