Annual Investment Allowance

The Word TAX in Red Boxes

The Annual Investment Allowance (AIA) is a 100 per cent allowance for tools and equipment capped at an annual amount.

This means that all expenditure within this capped amount can be written off against the taxable profits for the same period. Expenditure over that amount is subject to the normal writing down allowances of 18 per cent or 8 per cent.

AIA is available to most companies, individuals and partnerships – where all members are individuals, and is an incentive to invest as it can help cash flow. It rewards investment by speeding up the tax relief for such expenditure, so that it can be claimed in the year of investment, rather than over a number of years.

From April 2014, AIA for Corporation Tax and Income Tax has been set at £500,000 per year up to 31 December 2015. It will return to £25,000 from 1 January 2016.

The allowance simplifies the tax system for UK businesses because the majority of them invest less than £500,000 on tools and equipment. This means that they don’t have to make writing down allowance calculations every year. Even when the rate returns to £25,000 – 95 per cent of all businesses will be able to write all their qualifying capital expenditure off against tax.

For example – for the period 1 April 2014 to 31 March 2015 your taxable profits are £1,000,000 and you have spent £450,000 on qualifying capital expenditure. You can write the full amount off against your taxable profits making them £550,000.

AIA is available for most assets purchased by a business, such as:

  • machines and tools
  • vans
  • lorries
  • diggers
  • office equipment
  • building fixtures
  • computers

It does not apply to cars.