For most of us in business the recent, and continuing, Brexit fiasco has meant that making meaningful investment decisions has proved to be problematic. What will our future trading relationship with Europe look like and how will that affect our own trading results?
And yet in the UK we have an extremely generous tax allowance, aptly called the Annual Investment Allowance (AIA), that means we can write off the full cost of qualifying assets against our profits for tax purposes.
Although many small businesses are now incorporated those who still trade in partnership or as a sole trader and pay income tax on profits at the 40% or 45% rate, could see a significant tax saving by utilising the AIA.
The current scope of the AIA is set out in a summarised form below:
- You can claim AIA on most purchases of plant and other equipment, computers or commercial vehicles.
- You cannot claim AIA for the acquisition of cars, items you owned for another reason before you started using them in your business, or items given to you or your business.
- From 1 January 2019 to 31 December 2020, the amount you can claim under the AIA is limited to £1m.
- You can only claim the AIA in the accounting period when you bought the item. The date bought is defined as when you signed the contract to purchase – if payment is due within four months – or when payment is due if it’s more than four months.
- If your business closes you cannot claim the AIA in the final period of trading.
If you are considering an investment in new plant – and don’t forget that you should have a compelling commercial reason for making the investment – any tax relief is a welcome bonus. Please call so that we can help you quantify how much tax benefit you would be entitled to and also look at the wider commercial rationale for making your investment.