Firms urged to hurry up and claim £1m capital allowances before they disappear

October 6, 2020

Regional accountancy firm Milsted Langdon, which has an office in Bath, is encouraging businesses to take advantage of up to £1m in tax relief before it runs out.

The Annual Investment Allowance (AIA) for capital allowances was increased to £1m a year for expenditure from January 1, 2019. 

However, from January 1, 2021, it will revert to its previous level of just £200,000.

By using the AIA, companies can claim against most qualifying plant and machinery expenditure, allowing them to deduct the full value of the investment from their profits, thus reducing their Corporation Tax bill.

Milsted Langdon tax partner Robert Brown, pictured, said businesses hoping to make use of this relief before it ends should consider accelerating qualifying expenditure so that it falls within 2020.

“Businesses need to carefully consider how they use this allowance and when they make purchases as how much can be claimed may be affected by their year-end and when the investment is made,” said Robert.

“Companies with a financial year on December 31 can take advantage of the full amount. But where a company’s accounting period straddles December 31, 2020, the position is more complex as the AIA limit is time apportioned between the two varying rates – meaning they may not be able to take full advantage of the £1m allowance.”

However, he added that the complexities of the scheme shouldn’t put businesses off making a claim and that, even in cases where a business’s year-end affected the amount that could be received, it may still be worthwhile seeking this tax relief.

“The reality for many businesses at the moment is that sources of funding, such as bank loans or other forms of finance, are in short supply due to the ongoing global crisis, which is making lenders more cautious,” said Robert.

“Tax reliefs such as the AIA are not reliant on a business’s credit score and are eligible to a wide variety of businesses where they have qualifying expenditure.

“For those that are looking to diversify or pivot their business, this source of support could prove vital in helping them to invest in their future survival.”

Milsted Langdon has 22 partners and around 230 staff across its five offices offering a large range of business services from routine compliance matters to specialist tax advice and planning, corporate finance, business intelligence, insolvency, forensic accounting and mediation services.

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