Annual Investment Allowance (AIA) Claiming tax relief on equipment expenses the right way

For any business, it’s likely that you will at some stage have to invest in business infrastructure, equipment and machinery. If you are looking to use an asset for your business, then you should make sure that you fully understand how it can be used. Incorrect usage of your Annual Investment Allowance (AIA), can become problematic.

What is your Annual Investment Allowance?

Your Annual Investment Allowance is a form of tax relief set up by the Government, designed to encourage businesses to invest in plant and machinery. It’s a very generous solution that offers you the chance to get 100% first year tax relief on all qualifying capital expenditure for your business. For a start-up business, this can make the investments that you need to make to get started much easier to afford. Examples of items that qualify as plant and machinery for AIA include office equipment and furniture, computers, machinery, integral features of a building, such as electrical systems and vans used for business purposes.

However, while your AIA can be used for most qualifying items and investments in assets, it does not apply to cars. Keep this in mind, as cars will instead attract capital allowances.

Is there an Annual Investment Allowance limit?

If one thing is likely to change with regards to tax relief and allowances, it’s AIA. Since its introduction in 2008, the AIA limit has gone from £50k to £500k before settling in January 2016 at £200k. However, since the Budget 2018 changes, the Chancellor increased the annual investment allowance from 200k to £1m. As of 1st January 2019, all qualifying investment made in plant and machinery will fall under the new temporary increase. This will last for two years until 31 December 2020.

Who can claim Annual Investment Allowance?

AIA can be claimed by any individuals, companies or partnership that is looking to carry out a trade service, a professional service or any other form of vocation. Also please note that if you’re a sole trader or a partner, and you have more than one trade, then each business usually gets their own individual AIA.

You only receive one AIA if the business is controlled by the same person, operates in the same premises and/or has the same business function. In that instance, it would be up to you to decide how your AIA is split. On the same token, if two or more limited companies are controlled by the same person they would only get one AIA.

This could even include a UK non-residential property business, or a property lettings firm. However, please be aware that any partnership or trust that has individuals or companies within the business structure cannot qualify for use of AIA.

Making the most of AIA can be tough, as you need to be intelligent with your timing of purchases. Ever since 2008, companies have had access to the AIA scheme, with intermittent changes in what – and when – you can claim. At present though, we recommend making the most of AIA while this increase is in place.

How can I make my claim?

If you wish to push forward with a claim on Annual Investment Allowance, then you should look to do so as soon as you can. Keep in mind that you can only claim AIA in the period that you have purchased the item. So, the purchase date is considered the date you signed the contract, albeit payment is due within a four-month period. If payment is due more than four months after purchase, then the deadline for making the claim is when you make those final payments.

Please remember that any claims you make must be distinctive to their usage. For example, if you were to make an investment in an item that you use both inside and outside of your business, then you are unable to claim the full value of the item. If you were to, for example, buy a work PC that you then use for personal use too, you would most likely need to apportion your claim respectively.

To make your claim, though, you simply need to include your AIA declarations on your tax return. You can read more about claiming Annual Investment Allowance here

Things to consider about Annual Investment Allowance

As ever, it’s better to proceed with caution when it comes to using your AIA. If you are self-employed, especially, you need to be wary of potential pitfalls. An excessive claim could reduce your taxable income below your personal allowance.

By doing that, you would essentially write off all of your personal allowance. This has the potential to cause some issues for sole traders and self-employed professionals. Remember, you are unable to claim AIA on cars and items given to you or your business. These will attract capital or writing down allowances instead.

If you find it hard to keep up with the demands of AIA, or you are worried you may have made a mistake, it’s better to reach out. At Devonshire Green, we can help you to make the right choices with regards to how you use Annual Investment Allowance efficiently. Done right, this can be a very useful scheme to aid business growth. Make sure you always proceed with care and don’t be afraid to reach out if you are uncertain about how to claim or what to claim on AIA.

Nick Bagga