What is the Annual Investment Allowance?
The Annual Investment Allowance, or AIA, gives 100% tax relief on qualifying plant and machinery, excluding cars, up to £1 million per accounting period. A useful boost to cash flow when you invest in your business.
In practical terms, you can deduct the full value of a qualifying item from your profits before tax in the same year you incur the expenditure. The relief applies to most plant and machinery up to the AIA amount.
AIA cannot be claimed on business cars, items you owned for another reason before you started using them in your business, or items given to you or your business. For these, you would claim Writing Down Allowances instead.
£1 million a year
The cap is £1 million per 12-month accounting period. It’s been permanently in place since 1 April 2023, giving businesses long-term certainty when planning capital spend.
If your accounting period is more or less than 12 months, the cap is adjusted accordingly. For example, a 9-month accounting period gives an AIA of £750,000.
You get a new allowance for each accounting period. If you spend more than the AIA amount, you can claim first-year allowances or writing down allowances on any amount above the cap. If a single item takes you above the AIA amount, you can split the value between the types of allowance.
Key features
Claim it in the same year you incur the expenditure. Any unused AIA cannot be carried forward. The date you bought an item is when you signed the contract, if payment is due within less than 4 months, or when payment is due, if it’s more than 4 months later.
You choose what to claim it on, so you don’t have to apply AIA to everything eligible. If you do not want to claim the full cost, for example if you have low profits, you can claim Writing Down Allowances instead, or claim part of the cost as AIA and part as Writing Down Allowances.
A few other points worth knowing. Sole traders and partnerships using assets for both business and personal purposes must reduce their AIA claim by the proportion of non-business use. If two or more limited companies are controlled by the same person, they share a single AIA between them and can choose how to divide it.
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