What is the annual investment allowance?

Believe it or not, there are generous tax allowances available to help you invest in your business.

Successive Governments have recognised that businesses need to be able to invest to grow. They have also seen that investment can be expensive and risky for businesses, to the extent that they might decide the safer course is to do nothing. This isn't good for the business and it isn't good for the economy.

To resolve this dilemma, a system of tax allowances exists which allows businesses to write down their investments against taxable profits and reduce their Corporation Tax bills.

What is the annual investment allowance?

From 1 January 2019 - 31 December 2020, the Annual Investment Allowance (AIA) will permit businesses to claim up to £1,000,000 in capital allowance in any financial year. The AIA can be deducted from taxable profits at a rate of 100% so the savings can be substantial. The good news is that the allowance is available even if you have borrowed the money to acquire the assets. You can't, however, claim it, if you are renting or leasing.

Can we claim?

Most businesses are eligible for the AIA so, if you are a limited company and trading, there is every likelihood you will be able to claim. Sole traders can't claim and the are complications around certain types of partnership, so it's worth getting specific advice if you fall into this category.

How much can we claim?

Businesses are eligible to claim £1 in taxable profits for every £1 they spend on qualifying expenditure. From 1 January 2019, the maximum amount of qualifying expenditure will be £1,000,000.

For example, if you spend £1,250,000 on eligible assets in your financial year, you will be eligible for 100% tax relief on £1,000,000. The remaining £250,000 will receive tax relief at 18% (the current rate of Corporation Tax).

When can we claim?

You can claim the allowance in the same financial period that you bought the asset. If you borrowed the money, including via hire-purchase, you can claim for the payments you haven’t made yet, but you can’t claim on the interest payments. If you don't have sufficient profits to take full advantage of the allowance, you can claim writing down allowances instead.

What are eligible assets?

The list is long, but the most common examples include:

  • plant and machinery
  • office equipment and furniture
  • commercial vehicles (sorry, not cars unless they are used exclusively in the business)
  • fixtures and fittings for buildings
  • computers and software

Here at Productivity Finance, we're entirely focused on helping businesses raise the money they need to become more productive and grow. The types of asset eligible for the Annual Investment Allowance often support this ambition and it is an important part of the total cost of ownership calculation. Please talk to us about your purchasing plans and the funding options at your disposal.

*Please note that the availability of allowances and the associated rates are correct at the time of writing (October 2018), but they can be subject to change. You should also be aware that certain types of asset and business can be subject to different rules. Please speak with your accountant for detailed advice regarding any purchases you plan to make.

What is the annual investment allowance?

By: Paul Marston

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