Annual Investment Allowance (AIA) is a capital allowance tax relief to UK businesses introduced by HMRC that allows them to claim up to £1,000,000 the full value of qualifying capital expenditure (mainly on plant and machinery) from their profits before tax, up to a set annual limit.

Key Features of Annual Investment Allowance (AIA):

Promote: Encourage businesses to invest in assets by giving immediate tax relief rather than spreading it over several years through depreciation.

Who Can Claim: Most UK businesses, including sole traders, partnerships, and companies.

Qualifying Expenditure: Includes plant and machinery, computers, office equipment, tools, and some fixtures like integral features of buildings (e.g., air conditioning). Cars are excluded, but some energy-efficient equipment may qualify for different allowances.

Annual Limit: AIA limit is £1 million per year.

Important Notes:

If total qualifying purchases exceed the AIA limit, the excess may qualify for writing down allowances (WDAs).

The AIA limit can change based on government policy, so it's important to check the latest HMRC guidance or consult a tax advisor.

How can Annual Investment Allowance (AIA) on business assets claimed:

The AIA can be claimed by an individual, partnership or company carrying on a trade, profession, a UK non-residential property business or a furnished holiday let. Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for Annual Investment Allowance. The AIA tax relief is currently available for qualifying expenditure of up to £1 million per year.

Can I reduce my tax bill by incurring expenditure on large items.

The timing of the expenditure determines which tax year any AIA claim falls into. The tax benefits are likely to be a secondary concern to having the asset for operational needs but if there is some flexibility in when it is required the timing of purchase could impact tax liabilities. This could mean looking at accelerating plans, where possible, to incur expenditure before the end of the year and maximize tax relief.
 

What purchases qualify under Annual Investment Allowance (AIA):?

You can claim AIA on most items of plant and machinery, including:

• Office equipment (desks, computers, printers)
• Company vehicles (excluding cars)
• Tools and machines for manufacturing or construction
• Agricultural equipment
• Integral features in buildings (e.g. heating systems)

You can’t claim AIA on land, buildings, or cars.

A claim for AIA must be made in the period the item was purchased. This date is defined as the date when a contract was signed - if payment is due within less than 4 months of the contract being signed – or the actual payment date if it’s due more than 4 months later.
 

How does AIA help reduce my tax bill?

Claiming AIA means you can deduct 100% of the qualifying cost from your taxable profits, reducing your Corporation Tax liability significantly.

Example: If you buy a piece of machinery for £100,000, and you're a limited company, you could reduce your taxable profits by the same amount — potentially saving £25,000 in tax (assuming 25% Corporation Tax)

Contact us:
If you’re in the process of investing in your business with the purchase of business assets. make the most of the Annual Investment Allowance, contact our specialist tax team that can advise you on the best way to use this allowance.

Email us: info@taxvatreturn.co.uk

Call us: 01284 332375

Visit: www.tvraccounting.co.uk