Benefits of claiming the Annual Investment Allowance
Businesses that invest in qualifying assets may benefit significantly. Specifically, they can claim the Annual Investment Allowance (AIA). As a result, they deduct the full cost of eligible purchases from their profits before tax. Consequently, this reduces the taxable profit in the period of the investment.
Who can claim and how much
Generally, several types of business can claim the AIA. For example, it applies to:
- Sole traders
- Companies
- Partnerships where all the partners are individuals
Moreover, businesses can claim on most plant and machinery, up to the available limit. Currently, the AIA limit stands at £1 million. Therefore, many businesses can claim immediate relief on major investments. Instead of spreading relief over several years, they enjoy it straight away. Clearly, the benefits of claiming the Annual Investment Allowance can be substantial.
What purchases qualify
Qualifying purchases may include a wide range of items. For instance, you might claim on:
- Machinery
- Equipment
- Certain business assets
However, some items do not qualify. In particular, you cannot claim the AIA on:
- Business cars
- Assets previously owned for another reason before business use
- Items given to the business
When to make your claim
Importantly, you claim the allowance in the accounting period when you buy the asset. Therefore, you should always use the correct purchase date. In practice, this date may depend on when you sign contracts. Alternatively, it may depend on when payments become due.
Choosing the right approach
Sometimes, a business may not want to claim the full AIA. For example, low profits might make this sensible. In that case, you could claim writing down allowances instead. Alternatively, you might split the claim between the AIA and other capital allowances.
Get expert help today
Do you want to maximise the benefits of claiming the Annual Investment Allowance? Then, contact our team today. We will help you claim the right relief at the right time.
