The annual investment allowance (AIA) is part of the UK’s Capital Allowances regime under which tax relief is given for capital expenditure on qualifying plant or machinery. The amount of expenditure qualifying for the AIA is limited to £1 million per year.
This article answers frequently asked questions for the annual investment allowance scheme, to help you make the most of this valuable Capital Allowance.
How does the annual investment allowance (AIA) work?
Usually, Capital Allowances on plant or machinery (PMA) are given at the rate of 18% (Main Pool), or in some cases 6% (Special Rate Pool), on a reducing balance of the expenditure, which means that the cost is written off for tax over a number of years.
The AIA is a generous tax relief that allows for the total amount of qualifying expenditure (up to £1 million per year) on plant and machinery to be deducted from your profits before tax.
Crucially, the AIA must be claimed in the period the item was purchased.
Who can claim the annual investment allowance (AIA)?
The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, or a UK non-residential property business. Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for AIA.
Can I reduce my tax bill by incurring expenditure on large items?
The timing of the expenditure determines which tax year any AIA falls into. The tax benefits are likely to be a secondary concern to having the asset for operational needs, however if there is some flexibility in when it is required, the timing of a purchase could impact tax liabilities. This could mean looking at accelerating plans, where possible, to incur expenditure before or after the end of the financial year and maximise tax relief.
What business assets are eligible for the annual investment allowance (AIA)?
The AIA is available for most assets purchased by a business such as:
- Machines/equipment
- Tools
- Vans
- Lorries
- Diggers
- Office equipment
- Fixtures and fittings
- Computer
What assets are excluded from the annual investment allowance (AIA)?
Some assets are excluded from the AIA, including:
- Business cars
- Items you already owned before they were used for your business
- Gifts
Also excluded is expenditure incurred in the final accounting period of the business.
What happens if my business expenditure exceeds the annual investment allowance (AIA)?
If your business has spent more than the AIA of £1 million, then you can claim it by writing down allowances (WDA) for any extra spending.
Do businesses have to claim the full annual investment allowance (AIA)?
No, businesses aren’t required to claim the AIA of £1 million. They can choose to claim all, part or even none of the AIA.
What happens if my business buys something that costs more than the annual investment allowance (AIA)?
If your business buys something that exceeds the AIA of £1 million, it can claim a writing down allowance on the amount exceeding the AIA.
What happens if my business sells an asset when we’ve already claimed an annual investment allowance (AIA) on it?
It’s fine to sell an asset that your business has already claimed an annual investment allowance (AIA) on. You’ll just have to pay a balancing charge (i.e., you will be liable to tax on any gain on the asset). If you’ve already claimed the full amount as an AIA, add the amount the asset has been sold for back into your taxable profits, and this will be your balancing charge.
How Leyton can help
Our team of Capital Allowance specialists come from a wide range of industries, including construction, engineering, manufacturing and surveying. Their technical and tax expertise allows them to uncover every asset eligible for tax relief as well as give guidance on how to make the most of the tax relief available.
Get in touch today to find out how they can help your business.
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