CONSTRUCTION businesses could benefit from a valuable temporary tax relief scheme that has largely gone unnoticed since its introduction in the Autumn 2018 budget.
The Annual Investment Allowance (AIA) allows expenditure on plant and machinery purchases up to the AIA limit to be set against company profits in the year the expenditure occurs.
The scheme could allow construction businesses to invest and grow – effectively benefitting from £1 tax relief for every £1 spent on plant and machinery purchases.
In 2018 the AIA stood at £200,000 and rose to the new threshold of £1m from January 1st 2019 for two years, making it a valuable incentive for large-scale investment for growth or replacement of ageing equipment and machinery.
However, the threshold is set to revert back to its former £200,000 on January 1st 2021, meaning any company embarking on significant capital expenditure should begin maximising on any available tax relief now.
By increasing the relief on qualifying expenditure up to a £1,000,000 limit, those businesses already spending up to the £200,000 threshold have a considerable incentive to increase or bring forward their capital expenditure on plant and machinery.
JCB Finance managing director Paul Jennings, said: “Depending on the business’ rate of tax, it is an open invitation to invest in plant and machinery and secure the equivalent of a 19% to 45% subsidy. Better still – if you acquire the plant via a Hire Purchase agreement the acquisition, for tax purposes, is treated as if cash had been paid. Plus, any interest payable is tax deductible too.
“However, different financial year ends will affect the proportion and timing of expenditure. Getting the timing and the amounts right is crucial to your business.”
The chart below illustrates the maximum amounts available by showing four different company financial year ends, and how vital it is to spend the right amount within the right periods in order to maximise tax benefits. Different financial years that straddle either the tax year or calendar year may result in complicated calculations that could lead to a lesser AIA being granted in that financial year. Given the lead times of some plant and machinery from order to delivery, this also needs to be carefully factored in to buying plans.