How your business should tackle the annual investment allowance – the “yo-yo tax”

Approach the government’s fast-changing schemes to encourage business investment with caution, says David Prosser.

An engineer doing some engineering
You can reduce your taxable income by the sum you spend on machinery
(Image credit: © Getty Images/iStockphoto)

Accountants have nicknamed the annual investment allowance (AIA) the “yo-yo tax” because it has moved up and down so often. Last month’s budget was no exception. Chancellor Rishi Sunak announced that rather than falling to £200,000 a year from January as previously expected, the AIA will now be maintained at £1m until 31 March 2023.

The higher AIA now comes to an end on the same day as the “super-deduction”, which the chancellor introduced earlier this year. The two schemes, both designed to encourage businesses to invest more, will now operate in tandem for the next 15 months or so. The schemes work in a similar way, but with subtle differences, so it is important for businesses to work out how to make the best of them.

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David Prosser
Business Columnist

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.