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LAMMA 2021

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Act quickly to take advantage of tax relief

Farmers are being urged to act quickly to take advantage of tax relief as their Annual Investment Allowance (AIA) will drop from £1 million this year to £200,000 from January 1, 2021.

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Act quickly to take advantage of tax relief

The allowance allows businesses to claim up to 100 per cent of the cost of an investment in qualifying plant or machinery for tax purposes up to the annual limit. Most farm vehicles, machinery and buildings should qualify for the scheme.

 

Martyn Dobinson, partner at accountants Saffery Champness, said: “For businesses planning substantial qualifying capital expenditure in the near future, they may wish to bring this forward to ensure the maximum AIA is available and tax relief for the expenditure is accelerated.”

 

He warned investments should only be made if they are good for the business and not just because of their tax benefits. He also says investment timing is important.


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“Generally, the expenditure is deemed incurred when the obligation to pay becomes unconditional – usually on delivery. There are, however, exclusions to this rule which should be discussed with your professional adviser,” he added.

 

Paul Jennings, managing director of JCB Finance, said: “While the AIA is due to revert to £200,000 on January 1 2021, businesses whose year-end is not December 31 could see their AIA allowance drop even lower, in some cases to as little as £50,000 if they do not time their purchases right.

 

“The temporary increase to £1 million is only available for qualifying expenditure incurred in 2019 and 2020. If companies have a December 31 year end, then the position is straightforward, as a December 31 year end will coincide exactly with the decrease in the limit. Put simply, firms would receive £1 million potential relief in 2020 and £200,000 potential relief in 2021.”

 

The maximum allowance for a farm with an accounting period of April 1, 2020, to March 31, 2021, will be £800,681 because it can only claim three quarters of the £1 million allowance in 2020 (April 1 to December 31) and one quarter of the £200,000 allowance in 2021 (January 1 to March 31).

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