Capital Allowances Update
Permanent increase in AIA limit
The Annual Investment Allowance (AIA) is a capital allowance which provides immediate relief for qualifying expenditure up to the AIA limit. The limit will now remain at £1 million, rather than reverting to £200,000 from 1 April 2023.
As a result, you may wish to reassess your capital expenditure plans. Where cashflow is tight, it is no longer necessary to incur the expenditure before 31 March 2023 to benefit from the £1 million limit.
Super-deduction and 50% first-year allowance for companies
Companies are able to benefit from two additional first-year allowances for qualifying expenditure incurred in the period from 1 April 2021 to 31 March 2023.
The first is a super-deduction available for most expenditure that would otherwise benefit from main rate writing down allowances at the rate of 18%, although cars are excluded. Where the expenditure qualifies for the super-deduction, the first-year allowance is given at the rate of 130% of the qualifying expenditure. A balancing charge may apply on the disposal of the asset.
Where available, the super-deduction is advantageous and will provide a better rate of relief than that given by the AIA.
The second temporary allowance is a 50% first-year allowance for qualifying expenditure that would otherwise qualify for a writing down allowance at the special rate of 6%. The first-year allowance is given at the rate of 50% of the qualifying expenditure. It is not available for expenditure on cars. As with the super-deduction, a balancing charge may apply.