Annual Investment Allowance: Here’s Everything You Need To Know

If you’ve purchased or are considering purchasing assets for your business, you may be eligible for tax relief under the Annual Investment Allowance (AIA). Businesses frequently need to make capital investments to improve efficiencies, expand, or update with the latest technology.

When the Annual Investment Allowance (AIA) was first implemented in 2008, it was intended to stimulate investment by allowing firms to deduct 100% of the cost of eligible assets from their taxable profits up to a specific limit.

However, this guide will show you the most acceptable financing options for your needs and guide you through the entire process, from your initial inquiry to having money in your bank account and beyond.

What is Annual Investment Allowance?

The Annual Investment Allowance (AIA) is a type of tax relief available to British firms to purchase equipment. The AIA lets a company deduct a specific amount of eligible capital expenditure from its taxable profits in a particular tax year. This fund will be used to purchase commercial equipment, especially tools and machines. 

The AIA can be used for qualified expenses incurred by an individual, a partnership, or a corporation. The spending must be related to a qualifying activity, such as a trade, profession, work, or a lettings business.

Can I Claim Annual Investment Allowance?

Yes, you can claim AIA as per the government rules and regulations. The government imposed a limit on how much Annual Investment Allowance a company can claim in a year. If you buy more expensive assets than the limit, you won’t be able to claim Annual Investment Allowance on all of them. 

Since its foundation, the amount of expenditure you may claim under the AIA has changed several times. The expenditure level was raised to £1,000,000 in 2019 from £200,000 in 2018 for a limited period of two years. This new regulation will last until January 2021, and then it will revert to its original level. 

However, this policy will temporarily raise the annual investment allowance (AIA) level from £200,000 to £1,000,000 for qualified plant and machinery expenditures made between January 1, 2022, and March 31, 2023.

What Assets Can You Claim AIA On?

Most of the assets bought for company use are eligible to claim the AIA. It also covers hire buy assets, but not lease-based ones. Here’s the list of assists that gives you a chance to avail of AIA benefits.

  • Office equipment such as computer hardware, certain types of software, office furniture, etc.
  • For transportation purposes: vans/ lorries
  • Some building fixtures: Air conditioning, bathroom fittings, and fitted kitchens.
  • Machinery such as tractors and other agricultural machinery
  • Fire alarms and CCTV systems

It makes no difference whether you own or rent the premises for which you claim assets. Only the person who bought the equipment can claim the Annual Investment Allowance. However, some assists aren’t eligible to claim AIA, which includes:

  • Buildings 
  • Personal cars
  • Lands
  • Any type of equipment that you lease through your business 
  • Assets are provided to your business, but you did not pay for
  • Assets you bought for other purposes before you started using them for your business. 

What is Annual Investment Allowance For Self-employed?

 If your business is VAT registered, you can claim the AIA based on the total cost of the asset unless any VAT you can recover. If your business isn’t VAT-registered, you can claim it on the asset’s total price.

Suppose your business bought equipment that qualifies for the Annual Investment Allowance. In that case, you can deduct 100% of the expense of that product or item from your earnings before estimating how much tax you owe.

When can AIA be Claimed?

You can only claim AIA for the time you purchased the item. If payment is due in less than four months on the date signed the contract. Or if payment is due more than four months.

When you purchase something on a hire purchase agreement, you can claim the payments you haven’t made yet once you start using it. You are unable to claim the interest payments.

If your business closes, you cannot claim the Annual Investment Allowance(AIA) for products purchased in the final accounting period. Instead, you must record a balancing allowance on your tax return for the year you completely close your firm or business.

On the other hand, if you’re a sole trader or partner running the company, you won’t be able to claim the total worth of products you use outside of your firm. Reduce your capital allowances by the length of time you spend using the asset outside of your firm. 

Is AIA the Same As Capital Allowance?

Annual Investment Allowance or AIA is a type of capital allowance that many companies or individuals can benefit from by declaring the assists they bought for their business and getting the tax exemptions. 

Whereas the capital allowance is for those assets purchased for use in the business, such as equipment, research costs, spending for building upgrades, etc. 

The type of these assets decides whether you can claim them in full or half and whether the allowance is deductible in a single year or over several. There are two common types of capital allowance for which businesses can benefit which are:

  • Annual Investment Allowance
  • First-Year Allowance

In addition, there is a third option which you can avail of is Writing Down Allowance. If you don’t use all of your AIA or first-year allowances, you can use writing down allowances to claim a portion of the expense in the next accounting period.


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