Are you taking full advantage of the Annual Investment Allowance (AIA) within your business? Are you aware that you could be saving money on your taxable business assets? We can help. In this article, we explain what you need to know about the Annual Investment Allowance, to help you make the most cost-efficient and sensible business choices possible.
What Is the Annual Investment Allowance?
The Annual Investment Allowance is a type of tax relief that British businesses can use to purchase specific types of equipment. The AIA enables businesses to deduct the total amount of qualifying capital expenditure from its taxable profits within a given UK tax year (6th April – 5th April). It is subject to an annual maximum, which currently stands at £1 million.
Which Assets Qualify for the Annual Investment Allowance?
The AIA will provide complete tax relief on assets which qualify as plant and machinery. This includes office equipment, such as computer hardware, certain types of software and furniture, certain office fixtures such as bathroom fittings or air conditioning, machines used for business purposes and lorries or vans used for office moves. However, it excludes business cars, items you owned for another reason before you started using them in your business and items that have been given to your business rather than purchased.
Who Is Eligible for the Annual Investment Allowance?
The AIA can be claimed by companies and sole proprietors. A sole proprietor or member of partnership with more than one business can be eligible for the AIA for each of their businesses, so long as the businesses are not operated on the same premises and do not carry out similar activities. If a single individual is in control of more than one limited company, these businesses are only entitled to one AIA which must be divided between them at the discretion of the owner.
How Much Is the Annual Investment Allowance?
In the past decade, the AIA amount has changed several times. The standard AIA amount was temporarily raised from £200,000 to £1 million in January 2019. This was due to revert to its original level of £200,000 at the end of March 2023. However, in his Autumn 2022 Statement, the Chancellor of the Exchequer confirmed that the AIA will be extended to £1 million beyond this period. This announcement marks the Annual Investment Allowance’s highest ever permanent fixture.
Why Should You Take Advantage of the Annual Investment Allowance Before 31st March?
As the Annual Investment Allowance is a form of tax relief. Any claims need to be submitted before the end of the tax year, which occurs in early April. You are only able to claim AIA in the four-month period that you bought a particular asset. That means that if you have not yet claimed on any applicable business items bought in the last four months, you should do so before 31st March or you will be taxed on them.
Need More Information?
Have you still got questions about the Annual Investment Allowance? As with anything related to company finances and tax, we always recommend you consult with your finance director and/or external accountants first.
If you do decide that it sensible to make IT related purchases that help leverage your AIA, we are here to assist. Remember that there is only 6 weeks until the end of the tax year (which is also the financial year for many organisations). We strongly advise you don't leave it until the last week of March. So get in touch today.