Extension of Annual Investment Allowance

Annual Investment Allowance (AIA) is a form of tax relief to encourage capital expenditure within businesses. It is applied on qualifying additions before calculating your writing down allowances (WDA). If the cost of your qualifying additions is within the current AIA amount, you can claim the full amount and deduct it from your taxable trading profits for the year. Any item in excess of the current AIA, you can only charge WDA to the excess.

It was first introduced in 2008. Since then AIA has varied between £25,000 and £500,000 however for the 3 years up to 1 January 2019 it was £200,000.

Currently AIA is set at £1 million and this has been extended until 1 January 2022 to further encourage purchases of plant and machinery. It was due to revert back to £200,000 at the end of 2020 but because of the recent effects of COVID-19, the government are hoping to boost investments of this nature by continuing this larger tax break. This in turn is a push to help the economy by allowing spending with significant tax relief.

 This will effect businesses that spend in excess of £200,000 on capital investments in plant and machinery. This includes all plant and machinery but excludes items which:

  • qualify for 100% First Year Allowance
  • were given as a gift to the business
  • had another use before being used for business
  • all cars

Changes to AIA will not affect sole traders or partners with income of less than £150,000 that have opted to use the cash basis which means you only declare cash that you receive or spend in a business so capital allowances do not apply.

If you would like to receive further information, please get in touch with a member of our team on 020 7306 9100 where we will be happy to assist you.

The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.

Written by
Francesca Milne
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