The Annual Investment Allowance (AIA) allows business owners to claim the total amount of qualifying expenditure on plant and machinery, up to certain limits. This deduction reduces profits subject to tax.
The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let business. Please note, that partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for AIA.
The AIA was permanently set at £200,000 for all qualifying expenditure on or after 1 January 2016. However, this limit was temporarily increased to £1 million for a 2-year period from 1 January 2019 to 31 December 2020. This increased limit is a generous allowance and should cover the annual spend of most small and medium sized businesses.
The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.
There is now just three months left until the end of the tax year. If you are thinking of incurring large items of capital expenditure for your business, now is a good time to consider your investment options.