Businesses investing in qualifying assets may be able to claim the Annual Investment Allowance (AIA) and deduct the full cost of eligible purchases from their profits before tax. This can help by reducing the amount of taxable profit in the period the investment is made.
The AIA can generally be claimed by sole traders, companies and partnerships where all the partners are individuals, on most plant and machinery up to the available allowance. The current AIA limit is £1 million, meaning many businesses can claim immediate relief on significant investments rather than spreading the tax relief over several years.
Qualifying purchases may include items such as machinery, equipment and certain business assets. However, the AIA cannot be claimed on business cars, assets previously owned for another reason before being used in the business or items given to the business.
The allowance is claimed in the accounting period when the asset is bought. Businesses should ensure they use the correct purchase date, which may depend on when contracts are signed or payments become due.
If a business does not want to claim the full amount of AIA, for example because it has low profits, it may choose to claim writing down allowances instead or split the claim between AIA and other capital allowances.
