Since the start of the year, businesses have seen a boost to the amount they can invest in plant and machinery, thanks to a temporary increase to the Annual Investment Allowance (AIA).
This was announced in Budget 2018, and meant that the AIA increased from £200,000 to £1 million from 1 January 2019. This new limit will apply for 2 years, ending on 1 January 2021.
Using the Annual Investment Allowance
The AIA allows you to deduct the full value of qualifying capital expenditure before tax, up to the amount of the allowance.
These qualifying items include most plant and machinery, but they do not include cars, items owned for another reason before you used them in your business, or items given to you or your business.
Changes to the amount
The allowance applies to 12-month periods, and has changed a number of times since its introduction in April 2008.
Special rules apply if it changed during the period you’re claiming for, so it’s important to be aware of what the AIA amount was at the time you bought the item you want to claim for.
| Sole traders/partners | Limited companies | AIA |
| From 1 January 2016 | From 1 January 2016 | £200,000 |
| 6 April 2014 – 31 December 2015 | 1 April 2014 – 31 December 2015 | £500,000 |
| 1 January 2013 – 5 April 2014 | 1 January 2013 – 31 March 2014 | £250,000 |
| 6 April 2012 – 31 December 2012 | 1 April 2012 – 31 December 2012 | £25,000 |
| 6 April 2010 – 5 April 2012 | 1 April 2010 – 31 March 2012 | £100,000 |
| 6 April 2008 – 5 April 2010 | 1 April 2008 – 31 March 2010 | £50,000 |
Investment boost or added complexity?
By raising the allowance, the Government has said it aims to stimulate business investment
However, the measure was criticised by the Association of Taxation Technicians for adding extra complexity for the majority of businesses, as only around 3% of firms are expected to spend more than £200,000 on investments.
The taxation group said the transitional rules that apply to these changes make it more difficult for businesses to plan their capital expenditure.
Get in touch
We can help you manage the transitional rules arising from the changes to the AIA, as well as advising on capital expenditure and claiming other relevant tax reliefs.
Contacttracya@knightandcompany.co.uk or call 01628 631056 to talk about claiming capital allowances and making the most of the AIA.