The Annual Investment Allowance

The Annual Investment Allowance is a way to claim tax relief on many assets that your business will buy.

If your business purchases a piece of equipment that qualifies for the Annual Investment Allowance (AIA), you can deduct 100% of the cost of that asset from your business’s profits before calculating the tax due on those profits.

The Annual Investment Allowance is determined by the government. This determines how much a business can claim in a year. Previously, the limit was £200,000, but it was temporarily increased to £1,000,000 in January 2019. This new limit has remained at £1 million for all claims from April 2023 onwards.

Unlike the new “Fully Expensing” scheme, which applies only to Limited Companies, the AIA can be claimed by Individuals, Sole Proprietors, Corporations, and Partnerships.

Given the above, the AIA is particularly useful for purchasers of Furnished Holiday Lets. Previously, any costs incurred over the old threshold of £200k would have been subject to “Writing Down Allowances”, which took a longer period to obtain the tax benefit. However, with the increased AIA, you can now claim all the relief available on the first £1 million in one go.

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 Annual Investment Allowance on the total cost of the asset.

To find out how the AIA could work for you please contact info@s-tax.co.uk and one of our advisers will get back to you.

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