Super-deduction highlights urgent need for clarification on future of AIA

Jeremy Coker, President of the ATT, said:

“I am sure that the new 130 per cent super-deduction will be very welcome by large companies which already incur very substantial expenditure on relevant capital assets. But we think that for the vast majority of businesses, the ongoing future and level of the Annual Investment Allowance (AIA) is likely to be considerably more important."

The AIA currently allows any business whether within the charge to corporation tax (such as a limited company) or income tax (such as a sole trader or a partnership) to claim tax relief on 100 per cent of its qualifying expenditure provided that it does not exceed the current annual limit of £1,000,000. However, that AIA limit only applies up until 31 December 2021. From 1 January 2022, the limit is due to drop back to its regular level of only £200,000.

Jeremy Coker said:

“The new 130 per cent super-deduction will only apply for the two years between 1 April 2021 and 31 March 2023. Perhaps more importantly, it will only be available to businesses (like limited companies) which pay corporation tax – not sole traders or partnerships. We know that businesses want certainty in relation to their taxation. But we now have the prospect of sole traders and partnerships seeing the AIA limit reduce from £1,000,000 to £200,000 in just under nine months’ time and limited companies seeing their 130 per cent super-deduction on an unlimited amount of expenditure evaporate in two years’ time leaving them with the same basic £200,000 AIA limit.

“There is an urgent need for clarification as to whether the enhanced AIA limit of £1,000,000 will be extended beyond 31 December 2021.” 

Notes for editors

1. The new 130% First Year Allowance is explained on GOV.UK.