The Annual Investment Allowance (AIA) has been temporarily increased to
£1 million per year.
What more of an incentive does a business need to invest in new plant and machinery, fixtures, fittings and
The Chancellor announced the first AIA back in 2008. It was only £25,000 then, so it went largely
unnoticed by all except the auditors. The Chancellor sets the limit in the budget and has been tinkering
with it ever since. The current cap will reduce back down to £200,000 on 1 January 2021.
The AIA is part of your capital allowances and allows a deduction of up to £1m from your profits before
tax, directly reducing your tax bill. The 100% in-year tax write down will apply to all qualifying general
plant & machinery and special rate expenditure up to the £1m limit. Cars are excluded.
Integral features –
the pricey kit like heating, air conditioning, lighting, power, alarms and lifts are
usually allocated to the special rate pool. These attract the lower write down rate of 6% per year. At this
rate the savings will be received slowly over many years. If the AIA is used on these assets first, you
speed up the rate at which you get your savings.
Expenditure on general plant such as carpets, signage, furniture and kitchen fittings, in excess of the AIA
has a write down rate of 18% per year, so the savings are received a bit quicker than integral features.
Businesses should be taking full advantage of these first-year allowances by timing their expenditure to
fall before 2021. Large construction projects are likely to span more than one financial period. Purchase
big-ticket items early to take advantage of the accelerated tax savings.
If your accounting period falls either side of 31 December period
you will have to take the AIA on a time apportionment basis. Get your accountant to calculate what your actual AIA is for each accounting
period up to 1 January 2021. The tax savings clock is ticking!
Contact Barth Consulting if you would like any more information on Capital allowances or the AIA.