UK News: Small business Annual Investment Allowance increased to £1m
In yesterday’s Spring budget, UK Chancellor Jeremy Hunt, announced the Government have raised the Annual Investment Allowance to £1m to benefit smaller businesses. As a result of this, 99% of all businesses can deduct the full value of their investments from their taxable profits for that year.
Additionally, the implementation of “full expensing” makes accounting far easier. This change will be in effect for the next three years, with the aim of making it a permanent policy when it is responsibly feasible. This policy will enable companies to deduct every pound they invest in IT equipment, plant or machinery from their taxable profits immediately and in full.
What does this small business Annual Investment Allowance increase mean?
It means that every single pound a company invests in IT equipment, plant (including software) or machinery can be deducted in full and immediately from taxable profits. For example a digital software solution could be classed as capital expenditure, so your business could reclaim back on your tax return. By increasing this allowance to £1m it will ensure most small business will not reach the upper limit except in extraordinary circumstances.
As the number of businesses that transition to digital increases, expenses related to software licenses and website development and maintenance have become commonplace. However, up until now it has be difficult to determine the appropriate tax treatment for these “digital expenses” but ‘full expensing’ clarifies that.
“An enterprise-focused economy is one that attracts and supports the most
HM Treasury, Spring Budget 2023
dynamic and productive companies. The UK has one of the most competitive
business tax regimes in the world, with the headline rate of Corporation Tax
continuing to be the lowest among G7 economies. Spring Budget goes further
by introducing full expensing for 3 years from 1 April 2023. During this period,
companies across the UK will be able to write off the full cost of qualifying plant
and machinery investment in the year they invest, supporting businesses to invest
and grow. The government intends to make this measure permanent when fiscal
conditions allow.”
You can read the Spring Budget 2023 in full here. Alternatively, there is further Guidance on Full Expensing here, so you can fully understand how this applies to your business.
Get in touch if you’d like to discuss taking advantage of this increase in AIA and we can help you get more for your business for less!