The Annual Investment Allowance
The Annual Investment Allowance (AIA) allows businesses to write off 100% of the cost of qualifying equipment, up to the allowed maximum, against taxable profits. It can be claimed by:
- An individual, partnership or company carrying on a trade, profession or vocation.
- A UK non-residential property business or a furnished holiday let business.
Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to claim AIA.
Businesses can currently write off 100% of the cost of acquiring qualifying assets against their taxable profits, up to an annual limit of £500,000. Most businesses had an AIA of £50,000 for equipment purchased during the 2008-09 and 2009-10 tax years. This limit was increased to £100,000 during the 2010-11 tax year and subsequently reduced in April 2012 to £25,000. The AIA increased from £25,000 to £250,000 for a two year period with effect from 1 January 2013.
It was announced as part of the Budget 2014 measures that the temporary increase in the AIA was to be extended from 31 December 2014 to 31 December 2015. In a welcome move the Chancellor also doubled the amount that can be invested in qualifying assets from £250,000 to £500,000. The increase applies from 1 April 2014 for companies and from 6 April 2014 for unincorporated businesses.
If the basis period straddles 1 April for companies, or 6 April for unincorporated entities, the AIA must be time‐apportioned accordingly. It is important that businesses are aware of the opportunities for making the most of the £500,000 AIA. Businesses thinking of incurring large items of capital expenditure in the future may wish to accelerate projects to ensure they take place before December 2015 in order to take advantage of the current AIA limit.