Buying new equipment for your business can involve a significant upfront cost. The Annual Investment Allowance (AIA) can help by allowing many businesses to deduct the full cost of qualifying plant and machinery from taxable profits in the accounting period in which the expenditure is incurred.
The standard AIA limit is currently £1 million.
What can qualify?
AIA is available on most qualifying plant and machinery. Depending on the business, this can include:
- machinery and production equipment
- computers and office equipment
- tools and other business equipment
- vans, lorries and certain other commercial vehicles
- some fixtures and integral features within commercial buildings
Business cars do not qualify for AIA, although other capital allowances may be available for them.
AIA also cannot be claimed on items that were given to the business or that you owned for another purpose before starting to use them in the business. Other capital allowance rules may apply instead.
Who can claim?
AIA is generally available to:
- limited companies
- sole traders
- partnerships where all the partners are individuals
Special rules apply where businesses are under common control. For example, two or more companies controlled by the same person may have to share a single £1 million AIA between them.
Businesses using the cash basis should also take care, as the normal capital allowance rules operate differently for them.
Timing matters
AIA can only be claimed in the accounting period in which the asset is treated as bought.
Normally, this is when the contract is signed if payment is due within four months. If payment is due more than four months later, the purchase date is generally when payment becomes due.
Different rules apply to hire purchase arrangements.
The £1 million allowance may also need to be adjusted where an accounting period is shorter or longer than 12 months.
Should you always claim the maximum?
Not necessarily.
A business with relatively low taxable profits may decide not to use all of its available AIA. It can instead claim writing down allowances, or use AIA for part of the expenditure and writing down allowances for the balance.
Companies may also have access to full expensing and other first-year allowances for qualifying investments, so the most valuable option will depend on the asset and the business's tax position.
That makes capital allowance planning worth considering before significant expenditure is committed, rather than only when the tax return is prepared.
How Naylor Accountancy Services can support you
If your business is planning to invest in equipment, machinery or other assets, Naylor Accountancy Services can help identify which expenditure may qualify, compare the available capital allowances and consider the timing of the claim as part of your wider tax planning.
Main office: 01892 807 001
Chichester office: 01243 776088
Bourne End office: 01628 530805
Email: [email protected]
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Published by The NAS News Team
