3. Annual investment allowance
You can deduct the full value of an item that qualifies for annual investment allowance (AIA) from your profits before tax.
If you sell the item after claiming AIA you may need to pay tax.
What you can claim on
You can claim AIA on most plant and machinery up to the AIA amount.
What you can’t claim on
You can’t claim AIA on:
- items you owned for another reason before you started using them in your business
- items given to you or your business
Claim writing down allowances instead.
The AIA amount
The AIA amount is £200,000. This is for 12-month periods from 1 January 2016.
Changes to the AIA
Between April 2008 and January 2016 the AIA amount changed several times.
If the AIA changed in the period you’re claiming for, you need to adjust the amount you can claim.
|Sole traders/partners||Limited companies||AIA|
|From 1 January 2016||From 1 January 2016||£200,000|
|6 April 2014 - 31 December 2015||1 April 2014 - 31 December 2015||£500,000|
|1 January 2013 - 5 April 2014||1 January 2013 - 31 March 2014||£250,000|
|6 April 2012 - 31 December 2012||1 April 2012 - 31 December 2012||£25,000|
|6 April 2010 - 5 April 2012||1 April 2010 - 31 March 2012||£100,000|
|6 April 2008 - 5 April 2010||1 April 2008 - 31 March 2010||£50,000|
You get a new allowance for each accounting period.
If your accounting period is more or less than 12 months
Adjust your AIA if your accounting period is more or less than 12 months.
Example If your accounting period is 9 months the AIA will be 9/12 x £200,000 = £150,000.
You may also need to take into account changes to the AIA in that time.
The rules are different if your accounting period is longer than 18 months or you have a gap or overlap between accounting periods.
When you can claim
You can only claim AIA in the period you bought the item.
The date you bought it is:
- when you signed the contract, if payment is due within less than 4 months
- when payment’s due, if it’s due more than 4 months later
If you buy something under a hire purchase contract you can claim for the payments you haven’t made yet when you start using the item. You can’t claim on the interest payments.
If your business closes, you can’t claim AIA for items bought in the final accounting period.
If you don’t want to claim the full cost
If you don’t want to claim the full cost, eg you have low profits, you can claim:
Items you also use outside your business
You can’t claim the full value of items you also use outside your business if you’re a sole trader or partner. Reduce the capital allowances you claim by the amount you use the asset outside your business.
Example You buy a laptop for £600. You use it outside your business for half of the time. The amount of capital allowances you can claim is reduced by 50%.
If you spend more than the AIA amount
Claim writing down allowances on any amount above the AIA. If a single item takes you above the AIA amount you can split the value between the types of allowance.
AIA isn’t available for partnerships where one of the partners is a company or another partnership.
More than one business or trade
If you’re a sole trader or a partner and you have more than one business or trade, each business usually gets an AIA.
You only get one AIA if the businesses are both:
- controlled by the same person
- in the same premises or have similar activities
If 2 or more limited companies are controlled by the same person they only get one AIA between them. They can choose how to share the AIA.
How to claim
Claim on your tax return.