The annual investment allowance (AIA) allows businesses to claim a 100% deduction on capital expenditure on qualifying plant and machinery up to a certain limit.
The AIA was set at £200,000 with effect from 1 January 2016 and was increased to £1 million on a temporary basis from 1 January 2019. This temporary increase has been subject to several extensions since it was first announced with the latest extension due to run out on 31 March 2023. Rather than yet another extension the government have now announced that the AIA will be permanently set at £1 million. The permanent replacement will be welcome as it provides a greater level of certainty to businesses and removes the complexity of changing amounts. The government are hoping this permanent change will encourage further business investment and expect that that the new permanent allowance will cover the investment needs of 99% of the UK's businesses.
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