The AIA gives a 100% write-off on certain types of plant and machinery, including cars with zero emissions, up to certain financial limits per 12-month period. The limit has been £1 million for some time but was scheduled to reduce to £200,000 from April 2023 which will now not take place.
Furthermore, up to 31 March 2023, companies investing in qualifying new plant and machinery are able to benefit from capital allowances, generally referred to as ‘super-deductions’ which you can find out more about here.
Here, our Senior Corporate Tax Manager, Paul Woodward, explains how you could benefit from utilising the Annual Investment Allowance and what assets can qualify.
Annual Investment Allowance the basics…
The AIA provides a 100% deduction for the cost of most plant and machinery (not cars) purchased by a business up to an annual limit and is available to most businesses.
It allows the total cost of plant or machinery purchases to be offset against your company’s taxable profit for the year. Effectively, this results in a saving on the cost of plant and machinery purchase of 19% at the current Corporation Tax rate.
Where a business has an accounting period that spans the operative date of the increase, transitional rules will apply (see examples below).
Where businesses spend more than the annual limit, any additional qualifying expenditure generally attracts an annual writing down allowance of only 18% or 8% depending on the type of asset.
Please note that only one claim for AIA can be used in a group of companies or individual companies under common control.
An example
Joe buys a new computer for his business costing £1,500. The profits for that year came to £20,000. He can claim the Annual Investment Allowance against the cost of the computer, so will pay tax and class 4 NI on £18,500 (£20,000-£1,500 = £18,500) rather than the full £20,000.
Who can claim?
The allowance is open to businesses whose activity includes one of the following criteria: trading; commercial property letting; office or employment; or leasing.
The only business structures, which are not eligible for the AIA are mixed partnerships (that is, partnerships comprised of both individuals and companies) and trustees.
Paul says…
“With many businesses putting spending and development projects on hold in the current climate, it is a welcome announcement that the £1,000,000 limit for the AIA will be held indefinitely. This provides certainty for businesses when making spending decisions.”
What could qualify under AIA?
Investments in plant and machinery such as the following could qualify…
| Computers and all kinds of office furniture and equipment |
 Vans, lorries, trucks, cranes and diggers |
 Integral features’ of a building or structure |
 Other building fixtures, eg. shop fittings, kitchen & bathroom fittings |
 All kinds of business machines, eg. printing presses, lathes & tooling machines |
 Tractors, combine harvesters and other agricultural machinery |
 Gaming machines, amusement park rides |
 Computerised / computer aided machinery, including robotic machines |
 Wind turbines and fibre optic cabling. |
We can help
If you are considering investing in plant or machinery we can assist with claiming Annual Investment Allowance tax relief, including:
- Checking that you are benefiting from the maximum reliefs available to you
- Reviewing your eligibility to claim
- Calculating relief available during transitional periods
- Planning and cash flow management for significant asset purchases
Please contact our tax team to arrange a free, no obligation consultation.
With more than 20 years in tax, Paul provides tax compliance and advisory services to clients, and specialises in R&D and capital allowance claims.