The £1m Annual Investment Allowance has been extended to January 2022!
In 2008 the government introduced a tax relief to British businesses known as the Annual Investment Allowance (AIA) encouraging businesses to invest in plant and machinery with a vision to stimulate economic growth. Since January 2016 the AIA has allowed businesses to reclaim up to £200,000 in capital allowances per fiscal year. Since 1st of January 2019 there has been an increase of the budget to one million pounds. Expected to end on the 1st January 2021, the government have recently extended the AIA meaning that it now ends on the 1st of January 2022 instead. The extension was granted to stimulate further investment in UK manufacturing and to support business confidence.
What does this mean?
A business can deduct the full value (100%) of an item in the year of purchase that qualifies for AIA, meaning for every £1 spent by a business, they would be eligible to save an additional £1 in taxable profits until the expenditure/allowance has been reached.
What qualifies?
You can claim AIA on most assets that are intended for business use and have a combined value up to the AIA amount. This includes every sort of plant and machinery such as; computers, office equipment, vans, agricultural machinery, fibre optic cabling- even amusement park rides. Integral features, such as fitted kitchens, alterations to install plant and machinery and any costs of demolishing plant and machinery (but not repairs) are also included.
All assets have to be owned by the business and used for the purpose of the business.
What doesn’t qualify?
Anything that hasn’t been bought for the sole purpose of your business. For instance, you cannot claim tax relief on something you used prior to building your business, or an asset that was given to you.
You cannot claim tax relief on buildings, land or structures.
It’s worth mentioning that the AIA cannot be claimed for company cars. These get tax relief via the part of the capital allowance system known as “writing down allowances”.
Who can claim?
Most businesses are eligible for AIA. Unfortunately, however, AIA isn’t available for trustees or mixed partnerships where one of the partners is a company or another partnership.
What if I have more than one business or trade?
If you’re a sole trader or a partner and you have more than one business or trade, each business gets an AIA. However, each business must be controlled by the same person.
What happens if I use a business asset at home?
You can’t claim the full value of items that you also use outside your business if you’re a sole trader or partner. The capital allowance you claim would be reduced by the amount you use the asset outside your business. For example, you buy a laptop for £500 but use it for half of the time outside your business, the amount of capital allowance you can claim will be reduced by 50%.
When can I claim?
A claim must be processed in the accounting period you bought the item.
What if I spend more than the AIA amount?
Once the allowance has been used any further capital expenditure on plant and machinery will attract writing down allowances only (unless it is of a type that qualifies for a first-year allowance).
How do I claim?
You will need to complete a tax return.
Next Steps
The AIA enables businesses to utilise the savings you make to invest in new equipment to help support the growth of your business.
Contact Chatsbrook on 01603 733500 to find out about a range of versatile funding options for your business. We have access to an unparalleled panel of funders to suit both you and your business. We use our unrivalled network to ensure that you can fund the assets needed to expand and grow your business.
