The Government have shared some good news that the current Annual Investment Allowance (AIA) of £1,000,000, which was due to revert down to £200,000 on 1 January 2021, will be extended for a further year to 1 January 2022. Businesses, including manufacturing firms, can continue to claim up to £1 million in same-year tax relief for capital investments in plant and machinery assets.

This has been done to boost the confidence of firms who are looking for ways to weather the storm through the pandemic. Businesses will now have to worry less about when they make their investment, as they now are able to benefit up to £1million in tax relief for another full year. Please note that you cannot claim AIA outside of the accounting period in which you bought the item. The date that you bought the item would be:

  • When you signed the contract (if payment is due in less than 4 months), or
  • When the payment is due (if it is due more than 4 months later).

What if I own multiple businesses?

A self-employed sole proprietor or a partner can have more than one business or trade. In cases such as these, each business will usually get the AIA, but only one AIA is available if the businesses are:

  • Both controlled by the same person.
  • Have similar activities or located in the same premises.

Two or more limited companies sometimes get controlled by the same person. In this case, they would get one AIA between all the companies. The individual then gets to choose how they would like to divide the share of the AIA.

What can’t I claim AIA for?

Buildings and land structures don’t qualify as capital allowances. These include doors, gates, shutters, mains water and gas systems, bridges, roads, and docks.

You can’t claim capital allowances for things you lease, either, or for things you only use for business entertainment. Gov.uk gives the examples of a yacht or a karaoke machine.

How do I apply for AIA?

You claim for this through your tax return

*If you have any questions regarding your investments or AIA, please contact your usual Partner or Manager, who will be happy to help.*