The Annual Investment Allowance (AIA) is a valuable tax relief that allows businesses to deduct the full cost of qualifying plant and machinery from their taxable profits. This means that, instead of claiming relief over several years, businesses can often obtain 100% tax relief upfront.
The AIA is currently capped at £1 million per year, and a fresh allowance is available for each accounting period (adjusted if the period is shorter or longer than 12 months).
Most plant and machinery qualifies, including items such as tools, machinery, vans, office equipment, computers and certain building fixtures. However, AIA cannot be claimed on cars, assets previously owned for non-business use or items given to the business.
AIA is available to sole traders, partnerships and companies. However, it is only available to partnerships where all partners are individuals, mixed partnerships that include companies do not qualify.
Timing is important. You can only claim AIA in the period the expenditure is incurred. This is usually the date the contract is signed if payment is due within four months, or the date payment becomes due if later. Special rules apply for hire purchase.
If you do not want to claim the full amount you can claim part of the cost and carry forward the balance using writing down allowances.
Used correctly, AIA can significantly reduce a business’s tax bill, particularly where there is substantial investment in equipment.
