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Annual Investment Allowance (AIA)

The AIA is a form of Capital Allowance that offers a 100% allowance on qualifying capital expenditure in the year of purchase. AIA was introduced in 2008 since then there has been several changes in the last budget statement in March 2014 the Chancellor announced that the AIA limit will increase temporarily from £250,000 to £500,000 per annum with effect from 1st April 2014 for companies and from 6th April 2014 for sole traders & partnerships. The limit is due to revert to £25,000 per annum with effect from 1st April 2016.

This is an important tax incentive which accelerates the tax relief so that 100% may be available in the first year, instead of claiming the usual 18% on a reducing balance.

What is qualifying expenditure?

Qualifying expenditure covers most assets purchased for use by business. it includes:

  • Office furniture and equipment
  • Vans, lorries and equipment
  • Business Machines
  • Building fixtures e.g. shop fittings, kitchen or bathroom fittings
  • Tractors, Combine Harvesters & other Agricultural machinery
  • Gaming machines, amusement rides
  • Computer hardware and qualifying software
  • Computerised/ computer aided machinery including robotic machines
  • Wind turbines & fibre optic cabling
  • Driving school cars (adapted with dual control mechanisms) 

Are there any items of capital expenditure that do not qualify?

  • Land, Buildings or cars
  • Expenditure incurred in the accounting period when trade ceased permanently
  • Existing plant & machinery
  • Plant & machinery that was gifted
  • Plant & machinery under a long funding lease & subsequently brought into use for other purposes
  • Change in the nature/conduct of the trade carried out by a person other than the person incurring the capital expenditure & AIA is the main or one of the main benefits of making the change 

The AIA limit is expected to revert to £25,000 per annum with effect from 1st January 2016. it may therefore be important that businesses planning to invest in the future do so before 2016 whilst the higher increase in the AIA limit is in place.