You’ve only got until March 2023 to claim up to £1 million in Annual Investment Allowance, don’t miss out!
(4 minute read)
Today’s Friday Tax Tip explains:
- What is Annual Investment Allowance?
- How much you can claim
- How to claim it
What is Annual Investment Allowance?
The Annual Investment Allowance is a Capital Allowance that offers business owners tax relief when making purchases for their businesses.
It works simply; you just deduct the costs of purchases from your taxable profit before applying tax. This means you aren’t taxed on the value of the goods you bought, effectively investing your profits back into the company.
It also has the bonus of speed. You can claim relief in the same year you purchase the equipment, so you benefit quickly. As a result, it’s one of the most straight-forward ways to boost your tax position.
By using the allowance, you can see a huge reduction in your tax bill.
Annual Investment Allowance only covers plant and machinery, not cars. If you want to know more about saving tax on vehicles, check our other post here.
How Much Annual Investment Allowance Can I Claim?
The Summer budget 2015 set the limit of claims to £200,000. However, government temporarily raised it 5-fold, to £1 million.
This temporary rate was originally supposed to last for 2 years (beginning in 2019) but has now been extended into March 2023.
Can All Businesses Claim?
Most businesses can benefit from Annual Investment Allowance. Companies, Sole-traders and Partnerships can all claim as long as the partners are individuals.
If you own multiple businesses, you can usually claim the allowance on each business, sharing it across them all.
You can choose how to share the allowance, so one business could claim £300,000 and another £700,000. There’s no need to divide the allowance equally.
What Purchases Can I Claim?
This allowance is limited to plant and machinery but defining ‘plant and machinery’ can be hard.
For example, run a pub? Well, if the decorations are a fundamental part of the business, that counts as plant and machinery. You can claim for it. But in most other circumstances, HMRC considers decorations part of the premises and not claimable.
Generally, plant and machinery is that which is used to carry out your business but isn’t stock or part of the preemies.
This includes many of the assets you may have purchased, such as:
– Office equipment for yourself and your employees. This includes computers, some computer software, printers and office furniture.
– Some fixtures. This includes air conditioning, integral features, kitchen and bathroom fittings.
– Lorries, vans, forklifts etc used for moving.
– Machines needed to carry out your trade, including agricultural machinery such as tractors.
As previously stated, you cannot claim for cars (unless used in a driving school). In addition to this, you can’t claim for land or structures such as bridges and caves.
HMRC have provided some guidance on what you can and can’t claim, though in grey areas we often must turn to case law.
Claiming Your Annual Investment Allowance
Claiming Annual Investment Allowance can reduce your tax bill considerably with almost immediate benefits. Even better, it doesn’t require the same level of intensive planning as other tax reduction solutions.
Despite that, if you want to get the most out of your allowances, you will benefit from hiring an experienced accountant who can manage your claims for you.
The Tax Expert team’s years of experience allow us to slash our clients’ tax bills considerably.
Kind regards Ilyas