Annual Investment Allowances (AIA)
What Are Annual Investment Allowances?
Annual Investment Allowances (AIA) are a form of tax relief that allows UK businesses to write off the cost of business equipment like tools and machinery.
AIA was introduced as part of the Finance Act 2008 to encourage investment in plant and machinery, and subsequently stimulate economic growth.
The level of expenditure that can be claimed as part of AIA is not fixed, and has changed a number of times. It has been as low as £25,000, but as of January 2019 it’s set to £1,000,000. This is set to be reviewed again after 31st December 2020.
Who can Qualify?
It assists sole traders, partnerships and corporations alike, as long as all members are individuals. AIA encompasses most equipment that’s bought for business purposes.
The primary categories
for AIA include:
- Office equipment and furniture.
- Computer hardware and software.
- Removal lorries, vans or diggers.
- Building fixtures like air conditioning.
- Business (or agricultural) machinery or tools.
- Entertainment machinery (like arcade game machines).
- Dual-control adapted cars used by driving schools.
AIA does not cover:
- Building, land or structural work.
- Cars (part of the cost of a corporate car can be reclaimed via other means).
- Expenditure that’s solely for business entertainment.
Only those businesses that seek to claim AIA during the same year as an expenditure was made can make use of AIA, although some retrospective – and restricted – claims are considered in cases where the accounting periods are still open to amendment.
Certain retrospective or particularly high expenses cannot be claimed for using AIA. In those cases, tax relief for capital allowances is an option, allowing a business to use a Writing Down Allowance (WDA) to claim back some of the expenditure on a yearly basis.
Percentage rates vary from 6% to 18%, depending on whether the expense in question is classed as General or Special Rate/Integral Features Expenditure.
Visit the GOV.UK website for more detailed information.
The Key Benefits
A major benefit of AIA is the speed that it lets you access tax relief. Rather than taking a period of a few years, expenditure can be claimed within just one year following a purchase. This acceleration of tax relief greatly benefits a business’s cash flow.
AIA has the additional advantage of simplifying business tax, as expenditure that’s less than the current AIA threshold can simply be left out of financial calculations.
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