Claiming the Annual Investment Allowance
Claiming the Annual Investment Allowance (AIA) can offer significant tax benefits for your business. In this article, we discuss how to ensure you qualify and maximise any claim for relief.
What is the Annual Investment Allowance (AIA)?
The Annual Investment Allowance (AIA) is a generous tax relief available to most businesses where they can claim relief for qualifying expenditure for plant and machinery. This is regardless of their size. However, the relief is subject to certain conditions which are discussed below.
Who Can Claim it?
The AIA can be claimed by individuals, partnerships compromising of individuals and companies.
The AIA can also be claimed by employees. However the conditions are very stringent. An employee must prove it is necessary to provide their own equipment for work. Furthermore, the equipment must be essential for them to perform their employment role.
Who is excluded from claiming?
However, not everyone qualifies for the AIA. The exclusions include partnerships with corporate members or trusts. Additionally trusts acting alone don't qualify.
Additionally, sole traders and partnerships using cash accounting, face special rules.
Plus, small businesses utilising the Trading and Property Allowance cannot claim AIA.
Companies must navigate specific limitations which are covered in the section below.
Restrictions for companies
There are certain restrictions for companies that need to be considered before claiming the Annual Investment Allowance.
Firstly, a single company is only entitled to one AIA. What's more this applies even if there is more than one qualifying activity. However, the company can decide how that is allocated.
Secondly. a group of companies is only entitled to one AIA. Although, the companies can decide how it is utilised.
Additionally, where two or more groups of companies are controlled by the same person the companies collectively are entitled to one AIA. Once again, the companies can decide how it is best applied.
Other related companies who are under common control, also share a single AIA amongst themselves. However like those scenarios listed above this can be utilised in the most advantageous manner.
What businesses qualify?
The list of qualifying activities is fairly broad. However restrictions may apply to a property business or there is mixed use of an asset. In other words, where assets are partly used privately.
Which assets qualify?
Most plant and machinery costs qualify, although there are some exceptions:
Claiming the AIA
You make a claim for AIA is made as part of the capital allowances claim on a Self Assessment or Corporation Tax return.
Any capital expenditure is excluded from the profit and loss account. Although it is reflected on the balance sheet. Additionally, you'll need to adjust your accounts for tax purposes, disallowing depreciation. Any capital allowances, such as the AIA are claimed for tax instead
It is important to claim the AIA in the year that you incur the expenditure. However, you have 12 months post-filing deadline to correct any errors, should you forget to make a claim.
However an overpayment relief claim cannot be made for any form of capital allowances claim including AIA.
Planning points for AIA
You can choose which qualifying expenditure should be subject to a claim for AIA. If total qualifying expenditure exceeds the available allowance.
You should therefore claim AIA against those assets with the lowest Writing Down Allowances. For example integral features usually have an allowance of 6% rather than 18%.
The balance of any expenditure on which the AIA is not claimed is carried forward and added to the relevant pool.
Additionally, you might consider a restricted claim for the AIA if it results in the business making a loss and that loss is subject to any form of restriction.
Summary
By following these guidelines and understanding the scope of claiming the Annual Investment Allowance, you can significantly reduce your tax liability
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