What is the Annual Investment Allowance (AIA)?

 

The AIA provides a very simple system for a business to claim capital allowances, which reduce their taxable profit for a chargeable accounting period.

The AIA applies to capital expenditure relating to the acquisition of most plant and machinery except cars, and provides an allowance of the whole amount spent on this plant and machinery. The AIA was permanently increased from £25,000 pa to £200,000 pa with effect from January 1 2016. However up until December 31 2015 a temporarily increased AIA of £500,000 pa was in force.

 

For acquisitions that exceed the AIA, the balance is added to a general asset pool which is then claimed as a capital allowance of 18% pa until the value has been reduced to zero, or the asset has been disposed of.

 

What about the acquisition of cars?

Whilst the AIA cannot be used against the purchase cost of cars, there are First Year Allowances (FYAs), which are separate to, and in addition to any AIA.

 

100% FYAs are only available for new electric cars, low emission cars, zero emission goods vehicles, and certain ‘energy efficient’ & ‘water efficient’ plant. Low emission cars are defined as those with emissions not exceeding 75 grams per kilometre of CO2. This means that the whole cost of an electric car, or a new low emission car can be claimed as a capital allowance.

 

The cost of cars with emissions in excess of 75 grams per kilometre of CO2, but not exceeding 130 grams per kilometre of CO2 can be claimed as a capital allowance of 18% pa until the value has been reduced to zero, or the asset has been disposed of.

 

The cost of cars with emissions in excess of 130 grams per kilometre of CO2 can be claimed as a capital allowance of 8% pa until the value has been reduced to zero or the asset has been disposed of.

 

Special rules apply in respect of;

          Chargeable accounting periods that straddle December 31 2015

          Assets are available for private use

          Acquisition of short life assets

          Chargeable accounting periods of less than, or more than 12 months

          A business ceases trading

 

If you need advice about claiming capital allowances, to ensure that you don’t underpay OR overpay Corporation Tax/Income Tax please use the CONTACT US facility on this website and we will be very pleased to help.

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