Firms urged to act fast to benefit from tax relief on new machines

COMPANIES have been urged to act quickly in order to benefit from a temporary tax relief for the purchase of construction plant and equipment.

Currently the full cost of these purchases can be offset against tax through the Annual Investment Allowance (AIA), up to a maximum of £1 million, following a temporary increase introduced by the government.

However, from January 1 2021, the AIA limit will reduce to £200,000 and for some businesses, the limit could be even lower.

Paul Jennings, MD of JCB Finance, said, “While the AIA is due to revert to £200,000 on 1st January 2021, businesses whose year-end is not 31st December could see their AIA allowance drop even lower, in some cases to as little as £50,000 if they don’t time their purchases right.

“The temporary increase to £1 million is only available for qualifying expenditure incurred in 2019 and 2020. If companies have a 31st December year end, then the position is straightforward, as a December 2020 year end will coincide exactly with the decrease in the limit. Put simply, firms would receive £1 million potential relief in 2020 and £200,000 potential relief in 2021.

“For companies with a year-end other than 31st December, things become much more complicated. Due to how the available AIA relief is calculated, for businesses whose financial year spans the calendar year, their effective AIA limit restricted to significantly less than £200,000. That’s why it is important that companies act now to take full advantage of their AIA.”