The annual investment allowance (AIA) lets a business deduct the full cost of most plant and machinery from its taxable profits in the year of purchase, up to £1 million a year. It is not available on cars.
What it covers
The annual investment allowance gives 100% relief in the year you buy the asset. It covers most plant and machinery, including equipment, computers, vans, tools, office furniture and the fixtures in a building. It is available to companies, sole traders and most partnerships.
It does not cover cars, assets you owned before you used them in the business, or assets given to the business.
The limit
- The limit is £1 million for a 12-month period and is reduced in proportion for a shorter one.
- Companies in a group share one allowance. So do companies under common control that share premises or carry on similar activities.
- Spending above the limit goes into the pool and gets writing-down allowances instead.
AIA or full expensing
A company buying new main-rate assets can use full expensing, which has no limit. The AIA remains useful for second-hand assets and for special-rate assets, where full expensing only gives 50%.
Read more: Capital allowances and Capital allowances in Tax Optimiser.