The temporary £1 million increase to the Annual Investment Allowance (AIA) has now been extended until 1 January 2022 to help businesses invest, the Government has announced.

The increase to the AIA, which saw relief rise from £200,000 to £1 million for two years from 1 January 2019, was originally due to end in January 2021.

However, to help “stimulate investment in UK manufacturing” HM Revenue & Customs (HMRC) will extend the current rate for at least another year.

This means that businesses across the country can continue to claim up to £1 million in same-year tax relief through the AIA for capital investments in plant and machinery assets.

Under the relief, businesses can deduct the full value of an item that qualifies for AIA from their profits before tax.

This includes most plant and machinery, but not cars, items owned for another reason before the business started using them or items given to the business.

While the extension to the scheme is welcomed, it is important that business plan now if they intend to use the capital allowance within the next year, as the amount that can be claimed in future may differ depending on a business’s year-end.