The allowance offers 100% tax relief on qualifying plant and machinery up to a specified annual limit.
In 2019, the allowance was increased from £200,000 to £1 million – a rise that was scheduled to come to an end on 31 December 2021.
Chancellor Rishi Sunak has now extended the higher rate until 31 March 2023, when the UK’s main rate of corporation tax increases from 19% to 25%.
Speaking in his Autumn Budget 2021, Sunak said:
“Now is not the time to remove tax breaks on investment.
“So I can confirm that the £1m annual investment allowance will not end in December [2021] as planned, it will be extended all the way to [31] March 2023.”
The extension marks victory for the Association of Tax Technicians (ATT), which had previously campaigned for an extension to the allowance.
The ATT successfully lobbied for an extension last year, citing many firms had not been in a position to utilise the allowance in a way they otherwise might have done due to the pandemic.
The group said the latest extension “is good news for businesses whose annual capital spending exceeds £200,000, particularly if their profits are charged to income tax rather than corporation tax”.
But it wants the Treasury to resolve transitional provisions in order to help small businesses.
Jon Stride, co-chair of ATT’s technical steering group, said:
“More than 95% of UK businesses incur qualifying capital expenditure of less than £200,000 each year.
“The temporary limit of £1m could never benefit these businesses – but the transition back from £1m to £200,000 in 2023 could actively disadvantage them.
“We hope that the Government will take the opportunity in the forthcoming Finance Bill to introduce a simplification measure.”
Contact us about the annual investment allowance.