The Annual Investment Allowance (AIA) is a form of tax relief for businesses that is designated for the purchase of business equipment. It allows a business to deduct the total amount of qualifying capital expenditure up to a certain limit from its taxable profits.
Nicola Roby, Tax Director at CHW Small Business Accountants in Bolton explains what the allowance is and the imminent change.
AIA is essentially a capital allowance that enables a business to write off the cost of most items of plant and machinery in full against profits in the year in which the expenditure is incurred.
AIA is available for most items of plant and machinery. This includes capital items used in the business, such as equipment, machines, computers and vans. Some integral features are also included such as fitted kitchens, and also alterations to install plant and machinery and any costs of demolishing plant and machinery.
Cars are not included along with items owned for another reason before they were used in the business, or items given to the business or business owner.
Using the AIA, businesses can deduct the full value of qualifying plant and machinery from their profits before tax.
Since it was introduced in 2008, the AIA limit has changed several times. It is currently £200,000 per annum.
However, it was announced in the 2018 Budget and draft 2019 Finance Bill that the AIA for qualifying expenditure on plant and machinery will temporarily increase to £1m per year for the period 1 January 2019 to 31 December 2020 after which it is due to revert back to £200,000.
Suren Thiru, Head of Economics at the British Chambers of Commerce commented “This announcement will provide a major enticement for firms to invest and grow. It will give companies across the UK the confidence to push ahead with investments in plant and machinery, property and staff training.”
Whilst the increase in AIA will allow some businesses to gain more tax relief on their investments, according to HMRC statistics only around 3% of businesses currently exceed the AIA of £200,000, so the other 97% are unlikely to see any benefit from the change.
For further information or assistance on the AIA or any other capital allowances issues please contact Nicola