Annual Investment Allowance - AIA

16 January 2015

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The Annual Investment Allowance (AIA).

The AIA is a capital allowance that offers 100% allowance on certain qualifying capital expenditure in the year it is bought. It is available to all businesses.

On 19th March 2014 the Chancellor announced that the AIA limit will increase from £250,000 to £500,000 per annum with effect from 1st April 2014 for companies and 6th April 2014 for sole traders & partnerships. The expectation is that the AIA limit will revert to £25,000 per annum with effect from 1st January 2016. (Please note that transitional rules will apply for the accounting periods that span those dates).

The AIA increase was designed to provide an incentive for business investment in capital equipment, it is also expected to help manufacturers and suppliers of equipment by increasing the size of their orders.

AIA accelerates the timing of tax relief on qualifying expenditure (see https://www.gov.uk/government/publications/annual-investment-allowance-increase-to-500000-for-extended-temporary-period for full details) and depending on the timing of the investment businesses may be able to bring forward the tax relief on more of their capital expenditure.

AIA and finance 

AIA can be claimed on a hire purchase agreement (HP) where there is intent of ownership. You do not have to have paid in full for the equipment to claim it. The allowances apply as though you have purchased the equipment outright, even though you will be paying rentals over the life of the HP agreement.

Whilst qualifying expenditure covers most assets a business would purchase for use, it is important you check before making any decisions - http://www.hmrc.gov.uk/manuals/camanual/ca23084.htm

It is important you get the timing of any investment correct to ensure you make the most of the increased AIA. We recommend you seek advice from your accountant or financial advisor to ensure you get the maximum benefit. If you would like us to recommend an advisor to talk to, please give us a call.

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