The Annual Investment Allowance (AIA) is an “upfront allowance” that is applied to equipment or plant expenditure that qualifies for AIA. This is an upfront allowance that is applied 100% to expenditure spending within qualifying parameters.
AIA is available for businesses investing in new plant and machinery equipment to help grow their businesses – from computer systems to new office chairs even to new vehicles – although not cars. You can apply AIA to vans, lorries, or even a pickup truck.
To find out a full list of what you can and can’t claim with AIA – HMRC has a useful guide to help businesses understand AIA.
How it works – If a business spends more than the annual limit, which is £1 million pounds, they will attract relief under capital allowance rules – more specifically post-limit spending will be eligible for writing-down allowances which will qualify at the item’s classification rate – which can be found in the HMRC guide above.
Why Is 2020 The Time To Start Thinking About Annual Investment Allowance?
A New Year means a new period of possible growth. The “Post-Brexit” Budget, under Philip Hammond MP, saw the Annual Investment Allowance increase from £200,000 to £1,000,000. This new rate kicked in on January 2019 but will end on the 31st of December 2020. This means companies have less than a year to fully utilise the AIA. The window for investment opportunities is short – 2020 is the time to invest.
The Small Print Explained – How To Calculate AIA For Your Unique Business Needs
When applying the Annual Investment Allowance relief to your plant or machinery purchases, you need to make sure that you use the right “addition date” when calculating the AIA relief. However, if your business “year-end” is not the same as the “calendar year” understanding your AIA can be difficult.
If your “chargeable” period goes beyond January 2020, what the HMRC terms “maximum allowance” will be based on two competing factors:
- A cap of £200,000 for any spending falling before January 1st, 2020 period
- The “temporary” £1 million yearly caps can be portioned within your period that falls after January 1st, 2020.
So, if your business thinks 2020 is a golden period to invest in major new technologies or equipment. As a business leader, you need to consider the dynamics of the investment and the timing therein are good for you. Also, you need to think about how the £1m cap will intersect with your financial periods by the end of the cap period – December 31st, 2020.
Other Areas To Consider – AIA Explained
If you plan to close down your business in 2020, then you aren’t allowed to claim Annual Investment Allowance during the final accounting period before closing down the business. Furthermore, AIA is only available to businesses – Limited or PLC – and not partnerships or sole traders.
Prestige Business Management Can Help
At Prestige Business Management we understand the complexities of claiming Annual Investment Allowance. We also understand how complex these issues are especially as year-end approaches. Therefore, why not call us today we are always happy to help businesses understand AIA and help give the relevant advice to help your business grow. Call us today on 0203 773 2927.
