What is the AIA?

The AIA is a way to claim tax relief on many assets that your business buys. If your business buys a piece of equipment that qualifies for the AIA, you can deduct 100% of the cost of that asset from your business’s profit before you work out how much tax is due on that profit.

If your business is registered for VAT, you claim the Annual investment allowance on the total cost of the asset less any VAT you can reclaim on that asset. If your business is not registered for VAT, you claim the AIA on the total cost of the asset. If you sell the item after claiming AIA you may need to pay tax.

AIA is available for companies, individuals and partnerships, where all the members are individuals.

How much can be claimed under the AIA?

The government sets a limit for how much AIA a business can claim in a year, which means that if you buy assets costing more than the limit, you won’t be able to claim Annual Investment Allowance on all your assets.

The AIA limit started at £50,000 in 2008, but it has been increased several time since then. In January 2019 it was increased to £1,000,000 and this limit was made permanent in April 2023.

You can only claim AIA in the period you bought the item. The date you bought it is:

• when you signed the contract, if payment is due within less than 4 months
• when payment’s due, if it’s due more than 4 months later.

If the AIA limit changed in the period you are claiming for, you will need to adjust the amount you claim.

Are all assets eligible for the AIA?

No, they’re not. You can claim AIA on most plant and machinery up to the AIA amount, but you cannot claim AIA on:

• business cars
• items you owned for another reason before you started using them in your business
• items given to you or your business

If you buy something under a Hire Purchase contract you can claim for the payments, you have not made yet when you start using the item. You cannot claim on the interest payments.

AIA is not available for partnerships where one of the partners is a company or another partnership. If you’re a sole trader or a partner and you have more than one business or trade, each business usually gets an AIA. You only get one AIA if the businesses are both:

• controlled by the same person
• in the same premises or have similar activities.

If 2 or more limited companies are controlled by the same person they only get one AIA between them. They can choose how to share the AIA.

100% first year allowances

In addition to the AIA, certain assets will qualify for 100% first year allowances, which means you can deduct the full cost from your profits before tax. However, you cannot claim 100% first year allowances and AIA for the same expenditure.

This applies to the following new and unused assets: 

• electric cars and cars with zero CO2 emissions
• plant and machinery for gas refuelling stations, for example storage tanks, pumps
• gas, biogas and hydrogen refuelling equipment
• zero-emission goods vehicles
• equipment for electric vehicle charging points
• plant and machinery for use in a freeport tax site, if you’re a company

How to claim AIA for your business

You should claim capital allowances on your tax returns, so:

• Self Assessment for sole traders
• Partnership tax return for partnerships
• Company tax returns for limited companies (including a separate capital allowances calculation)

If you are planning to invest in assets for your business and would like further guidance on how the Annual Investment Allowance could reduce your tax obligations, contact our team today.

We have over 27 years of experience helping UK businesses to streamline their financial strategy through bespoke solutions.

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