Autumn Budget 2021: annual investment allowance extended

The government will extend the temporary £1m level of the Annual Investment Allowance (AIA) to 31 March 2023. It was due to expire at the end of 2021 so this will give some to smaller firms to take advantage of the tax break on investment.

This will provide businesses with more upfront support, encouraging them to bring forward investment, and making tax simpler for any business investing between £200,000 and £1m.

The AIA is a 100% capital allowance for qualifying expenditure on plant and machinery up to a specified annual limit.

Businesses claim the AIA in respect of expenditure which would otherwise be eligible for writing down allowances (WDAs). Given at either the main or special rates, WDAs provide relief for eligible capital expenditure over a number of tax periods. The AIA therefore accelerates relief, typically simplifying processes for businesses and aiding their cashflow.

This measure is set to cost the Exchequer £585m through until 2024-25 tax year and will take effect from 1 January 2022.

Genevieve Morris, partner and head of corporate tax, Blick Rothenberg, said: ‘Extending the £1m AIA to March 2023 may sound generous, but it is unlikely to be of benefit to the vast majority of UK businesses who are already able to benefit from the 130% super deduction over the same period.

‘Really crunch time for business is going to come from April 2023 when these reliefs are withdrawn, and corporation tax is increased to 25%.  Businesses need to make the most of the next 18 months, and hope that gives them sufficient time to recover from the impact of the pandemic, before really tough years of high tax rates and low corporate reliefs hit, and no doubt will be here for many years to come.’-         

At the same time, the Recovery Loan Scheme will also be extended until 30 June 2022 to ensure that lenders continue to have the confidence to lend to small and medium-sized businesses.

Finance will be available up to a maximum of £2m per business, supporting them to recover from the impact of the pandemic and to grow. The government guarantee will be reduced from 80% to 70% to encourage the lending market to move towards normality as the economy continues to recover.

The Chancellor also confirmed over £1.6bn for the British Business Bank’s Regional Funds to provide debt and equity finance to SMEs, and to expand the Regional Angels programme. There will also be more funding for start up loans to deliver 33,000 loans to entrepreneurs across the UK looking to start or grow their business.