Until 31 December 2021 the Annual Investment Allowance is £1 Million, on 1 January 2022 it falls to its previous level of £200k.
However, anyone who’s accounting year straddles 31 December 2021 could well fall foul of the transitional rules which apply when the allowance falls, if they do not time their capital expenditure correctly.
So, taking a rather popular year end of 31 March.
Your accounts year to 31 March 2022 of course straddles 31 December 2021.
So, it is split into 2 periods to calculate the maximum AIA available.
1 April 2021 to 31 December 2021, £1,000,000 x 9/12 = £750,000
1 January 2022 to 31 March 2022, £200,000 x 3/12 = £50,000
Max AIA’s available £800,000
So, you would think that as long as eligible capital additions were no more than £800K in the full year to 31 March 2022, then you would be entitled to full tax relief on the expenditure.
But that’s not how the rules work.
If £800K is spent in the period before the allowance falls (31 December 2021) then full relief is available.
But in the period after the change, full relief is limited to the apportioned AIA allowance for that period – so in this example £50,000.
Therefore, at that the extreme, if £800K was spent after 31 December 2021 and nothing pre that date, only £50K would eligible for full relief and the balance possibly only to Writing Down Allowances of 18% or 6%.
Though, it has all been further complicated by the introduction of the Super Deduction for brand new plant/machinery etc and so may not be as much of an issue as it would otherwise have been.
However, bearing in mind lots of business after leave capital spend to the end of their accounting, periods and some may not be eligible for the Super Deduction – this may not be the best for tax purposes for this one year, and hence if you are thinking of making fairly significant capital purchases in your accounts year that ends in 2022 then please review the position with us – sooner rather than later.