101Smart Ltd

To spend or not to spend

Annual investment Allowance (AIA) – the 100% tax relief on purchases of qualifying plant and machinery – was set at a permanent limit of £200,000 in the Summer Budget of 2015.
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Since 1 January 2019 businesses have benefited from a 2-year temporary increase in the AIA limit to £1M and this limit has now been extended until 31 December 2021 to provide support for Covid-hit traders.

This offers a further generous window for obtaining full tax relief on qualifying expenditure.  A cautionary note though - care needs to be taken during the 2021/22 tax year to time the purchase of qualifying assets bearing in mind the 31 December 2021 rate change.  Where the AIA “drops off the cliff” on 31 December 2021 you don’t want to be caught out with lower AIAs than you were expecting.

But that is something for later in the year, for now there are decisions to be made about purchase of new or second-hand kit, new buildings, dirty water management systems and numerous other projects.  In each case it is vital to consider how this purchase fits in with what the business needs, what the business can afford and what external factors may dictate.  Just because 100% tax relief is available does not mean that the business needs or can afford it.  Would that money be better spent elsewhere in the business or is that spend vital to the business’s future?  

Capital budgeting should form part of the annual forecasting discipline with an open, honest discussion with your accountant and other advisers about what your business needs to spend in the coming year.  Cloud accounting can help to inform this discussion with the provision of up to date, reconciled information available to farmer and advisers.  

Jenny Rowe

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