Annual Investment Allowance: What is it and who is it for?
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Annual Investment Allowance: What is it and who is it for?

The Annual Investment Allowance (AIA) is a scheme offered by the British government, it’s a type of tax relief which can be used for businesses who purchase machinery and equipment. The scheme is available for Sole Traders, Partnerships and Limited Companies.

When a company purchases a piece of plant or machinery which qualifies, you can deduct the cost from taxable profits in that same tax year.

It was originally introduced in 2008 with the aim of encouraging businesses to purchase machinery, and in turn, grow the UK economy through their product and service offerings. Now more than ever is the time to take full advantage of the AIA due to the budget announcement in 2019. Usually, the government allows companies to claim on plant and machinery up to a total cost of £200,000. However, for a short time only (1st Jan 2019 – 31st December 2020) they’re permitting companies to claim up to a total of £1million!

The reason for this enormous increase was surrounding Brexit. It’s the government’s way of encouraging business owners to remain confident and continue investing and growing. Whilst it’s on offer, take advantage of it!

What qualifies for the annual investment allowance?

For a plant, piece of equipment or machinery to qualify for the AIA, it must be used solely for business purposes. The following are all typically accepted:

  • Integral features such as lifts, air conditioning and electrical systems
  • Alterations to a building to install plant or machinery, although this doesn’t include repairs
  • Machines used for business purposes
  • Office equipment including computer hardware and furniture
  • Agricultural machinery including tractors
  • Lorries and diggers

You can claim AIA on assets you’ve bought through hire purchase or a loan.

What items do not qualify for the AIA?

Items which can’t be claimed using the AIA include buildings, cars, land and items purchased and used for business entertainment. If you owned a piece of equipment which was used prior to it being utilised in the business, you cannot claim on this either.

As an example, if you purchased a laptop to edit images of your family holiday’s abroad, but then transferred it to your office to use for work; it wouldn’t be eligible for the AIA.

Items must also bought and owned rather than rented or gifted, this means you can’t claim on lease-based assets. And, if you buy a piece of equipment, claim the AIA and then sell it, you may consequently have to repay the tax.

How can Capify support the AIA process?

At Capify, lending to SME businesses is all we do, and we’ve been doing it for over 10 years. We’re here to support your business with the Annual Investment Allowance via our innovative business finance solutions. If you want to purchase a piece of machinery or equipment, you can raise from £3,500 – £500,000 to pay for it. Then, when you receive the asset, you can claim the AIA to receive relief on your taxable profits.

Many businesses experience additional productivity and output by purchasing a new piece of equipment, it gives businesses many more opportunities for growth. And, getting tax relief due to the purchase is a huge benefit to owners across the UK too.

If you’re planning to purchase more equipment and machinery for your business but don’t have the spare cash at this moment, get a no-obligation quote from Capify and discover how much you can raise with our business loan.

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For specific tax advice, please speak to your accountant or for more information, visit the Government website.