Business investment and the annual investment allowance

The AIA allows businesses to write off the full cost of qualifying expenditure and in recent years the amount allowed as a deduction for tax purposes has fluctuated wildly.

From January 2016, the annual limit for AIA expenditure has been set at a new permanent limit of £200,000. Accordingly, this is the amount that can be claimed for 2016-17.

AIA is generally available on a purchase of plant and machinery that can include:

  • Fixtures and integral features
  • The alteration of land for the purpose only of installing plant or machinery
  • Vans, lorries and motorcycles

Expenditure that would not qualify for AIA includes:

  • Motor cars
  • Expenditure which would not qualify for capital allowances such as on buildings or structures.
  • Plant and machinery which was originally used for another purpose, for example, items owned personally which are subsequently introduced into the taxpayer’s business.
  • Plant and machinery acquired in the final period of business before the cessation of trade.

Also, AIA is not available to:

  • Sole traders or partners using cash accounting as from 6 April 2013 as this has modified rules in respect of deductions for plant and machinery.
  • A partnership with a corporate partner which could be a company or an LLP.

This remains a generous tax allowance, as the full cost of qualifying purchases can be written off against trading profits before calculating any tax due.

Business owners should be advised that a claim for AIA in the final period of trading prior to cessation of trade would not be allowed.

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