Annual Investment Allowance Increases To £1M
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, but with a big budget boost this is now being increased to one million pounds, effective from the 1st January 2019. 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, it 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 items of plant and machinery up to the AIA amount, which actually includes almost every sort of asset a person may buy for the purpose of his/her business. Plant and machinery include computers, office equipment, vans, agricultural machinery, fibre optic cabling even amusement park rides. Also included are integral features, such as fitted kitchens, alterations to install plant and machinery and any costs of demolishing plant and machinery (but not repairs).
All assets have to be owned by the business and used for the purpose of the business.
What doesn’t qualify?
Anything other than what you have 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.