Autumn Budget 2021: Annual investment allowance extended for a year

The Annual Investment Allowance (AIA) will remain at £1 million until 31 March 2023.

The AIA had been due to reduce to £200,000 on 31 December 2021. This enables 100% capital allowances to be claimed on most items of plant and machinery, including commercial vehicles, software and equipment.

There are no changes planned to the Super Deduction of 130%, which also applies to expenditure incurred on plant and machinery before 31 March 2023. In most cases, claiming the Super Deduction is more beneficial than the AIA, so businesses may be wondering why the increased AIAs are important. The reason is two-fold:

  • Firstly, second-hand equipment does not attract Super Deductions, whereas it is eligible for AIAs.
  • And secondly, certain expenditure attracts Super Deduction at the lower rate of 50%, compared with 100% AIAs. This includes integral features of buildings such as heating and lighting, electrical systems and air-conditioning.

From 1 April 2023, the AIA will return to £200,000, and the Super Deduction will end.

For more expert Autumn Budget insight and analysis, please visit our Budget hub.