Farmers told to act now to take advantage of tax relief

From 1 January 2021, the Annual Investment Allowance (AIA) limit will reduce to £200,000
From 1 January 2021, the Annual Investment Allowance (AIA) limit will reduce to £200,000

Farming companies are being urged to act quickly to ensure they take full advantage of tax relief for the purchase of plant and equipment.

Currently the full cost can be offset against tax through the Annual Investment Allowance (AIA) up to a maximum of £1m, following a temporary increase.

This increase to £1 million, introduced by the government, is only available for qualifying expenditure incurred in 2019 and 2020.

From 1 January 2021, the AIA limit will reduce to £200,000, but for some firms the limit could be even lower – costing hundreds of thousands of pounds in reduced tax relief.

Now Paul Jennings, managing director of JCB Finance, is urging farmers to take full advantage of their AIA before it’s too late.

He said: “Businesses whose year-end is not 31st December could see their AIA allowance drop even lower, in some cases to as little as £50,000 if they don’t time their purchases right.

“If companies have a 31st December year end, then the position is straightforward, as a December 2020 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."

But for farming companies with a year-end other than 31st December, things become much more complicated, he said.

Due to how the available AIA relief is calculated, for businesses whose financial year spans the calendar year, their effective AIA limit restricted to significantly less than £200,000.

"That’s why it is important that companies act now to take full advantage of their AIA," Mr Jennings explained.