It is the KING of all capital allowances. Unlike written down allowances, under Annual Investment Allowance (AIA), 100% tax relief (up to AIA limit) can be claimed on all qualified business assets purchased in a financial year.
AIA can provide an excellent boost to your business if you are planning to purchase major items of plant and machinery. Tax authorities provide such intensives to all industries worldwide to encourage investment and business growth.
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Q. Can I claim Annual Investment Allowance on all assets?
A. No, AIA is allowed on items of eligible plant and machinery.
Q. What are the eligible items?
A. You can claim capital allowances on most items of plant and machinery except:
- ● cars
- ● items you owned before starting using the same in your business; and
- ● items were given to you or your business
Q. What is Plant and machinery?
A. Plant and machinery include:
- ● items that are used in your business, including cars (but cars are explicitly excluded from AIA allowance)
- ● cost of demolishing the plant and machinery
- ● parts of a building considered integral, known as ‘integral features’
- ● some fixtures, like, fitted kitchens or bathroom suites
- ● building alterations to install other items of plant and machinery – excluding repairs
What is not plant and machinery
- ● Leased items – must be owned
- ● buildings, including gates, doors, mains water, shutters, and gas systems
- ● land and structures, for example, bridges, docks, roads
- ● business entertainment items, for example, a yacht or karaoke machine
Q. Is there a limit for AIA?
A. Yes, HMRC reviews AIA limits every year. AIA allowance has temporarily increased to GBP 1 million between 1 January 2019 to 31 December 2020.
Before this, it was £200,000 till 2018. AIA increased from £50,000 in 2008 to the current level of £1 million.
It can be prorated depending upon the duration of the financial year (for example, a shorter financial year).
For Example: If your businesses’ accounting period is 6 months, then the AIA will be 6/12 x £1,000,000 = £500,000.
Q. Can I claim AIA for items I bought in previous financial years?
A. No, AIA can only be claimed on assets purchased in the current financial year.
Q. What if I purchase items on lease under a hire purchase agreement?
A. You can still claim AIA on the cost of assets excluding any interest element.
Q. What if part of assets purchased are for private use?
A. AIA can be prorated and claimed on business use only.
Q. What if I spend more than AIA in a financial year?
A. You can claim written down allowance on the remainder of the assets. Some businesses time their purchase in such a way to maximise the use of AIA. Remember AIA is a yearly allowance, just like for your mobile phone contract you get new minutes and data each month, the business will get a new AIA allowance every year.
Q. I have more than one business, can I claim AIA for each business?
A. Yes, and no, it depends upon your business structure. As a general rule,
- ● If you are a sole trader or a partner with more than one business or trade, each business usually gets an AIA;
- ● You get one AIA if both businesses are controlled by the same person and are on the same premises or have similar activities; and
If the same person controls two or more limited companies, they only get one AIA between them. You can choose how to share the AIA.
Q. Is AIA available to Mixed partnerships?
A. No, it is not available to mixed partnerships where one of the partners is a company or another partnership.
Q. How to claim AIA?
A. You can claim AIA on your tax return.
Q. What happens if I sell the asset?
A. If you sell the asset after claiming AIA, you may need to pay the tax. It depends when the asset was sold, whether it was sold at market value or to a connected person.
However, no such calculations are required if you give it to a charity or community amateur sports club (CASC).
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Q. Did I miss anything about the AIA?
A. Yes, one last thing. If you are planning to close the business, you can’t claim AIA for items bought in the final accounting period.
AIA, if used wisely, can act as a significant boost to your cash flow by reducing your tax bill significantly.
Contact us to handle your tax returns and claim all available allowances and make your taxes more efficient.