Are you making the most of the temporary increase in the Annual Investment Allowance (AIA)?

Posted by Barth Consulting Ltd on 1st November 2019 -

The Chancellor announced the first AIA back in 2008. It was only £25,000 then, so it went largely unnoticed by all except the auditors. The Chancellor sets the limit in the budget and has been tinkering with it ever since. The current cap will reduce back down to £200,000 on 1 January 2021. 

The AIA is part of your capital allowances and allows a deduction of up to £1m from your profits before tax, directly reducing your tax bill. The 100% in-year tax write down will apply to all qualifying general plant & machinery and special rate expenditure up to the £1m limit. Cars are excluded.

Integral features - the pricey kit like heating, air conditioning, lighting, power, alarms and lifts are usually allocated to the special rate pool. These attract the lower write down rate of 6% per year. At this rate the savings will be received slowly over many years. If the AIA is used on these assets first, you speed up the rate at which you get your savings.

Expenditure on general plant such as carpets, signage, furniture and kitchen fittings, in excess of the AIA has a write down rate of 18% per year, so the savings are received a bit quicker than integral features.

Businesses should be taking full advantage of these first-year allowances by timing their expenditure to fall before 2021. Large construction projects are likely to span more than one financial period. Purchase big-ticket items early to take advantage of the accelerated tax savings.

If your accounting period falls either side of 31 December period, you will have to take the AIA on a time apportionment basis. Get your accountant to calculate what your actual AIA is for each accounting period up to 1 January 2021.  The tax savings clock is ticking!

Contact Barth Consulting if you would like any more information on Capital allowances or the AIA. 

Barth Consulting Limited

Capital Allowances Consultants

[email protected]

+44 (0) 7775 021 365