The allowance enables firms to fully offset the cost of qualifying capital items of plant and machinery against taxable profits.
Since 1 January 2019, businesses have received faster tax relief for plant and machinery investments up to £1 million.
The move tried to stimulate business investment in the economy by further incentivising firms to invest in plant or machinery.
But the two-year measure is due to close on 31 December 2020 and revert back down to £200,000 from 1 January 2021.
The ATT wants an extension to the temporary increase as “COVID-19 means 2020 has been a year like no other for businesses”, it said.
As a result, the group said many firms simply have not been in a position to utilise the £1m allowance in a way they otherwise might have done.
Jeremy Coker, president of the ATT, said: “Threats to their very existence from temporary closures, loss of sales, shortage of supplies and pressure on finances means businesses of all sizes have deferred purchases of plant or machinery unless absolutely essential.”
The expiration of the temporary increase to the allowance will affect businesses differently depending on when their finance year ends.
It will be straightforward for those with financial years ending on 31 December 2020 as they can utilise the full £1m allowance in 2020, but for others, the allowance changing in their financial year will add a layer of complexity.
Coker added: “It would not be very helpful if the incentive to invest in plant and machinery evaporated on 31 December 2020 just when businesses were hopefully beginning to see signs of recovery in 2021, which would provide confidence to make such investment.
“We very much hope the Chancellor is planning to announce an extension of the temporary £1m limit until 31 December 2021 at the earliest.”