The Annual Investment Allowance (AIA) is a generous tax relief that was first introduced in 2008. The AIA allows for the total amount of qualifying expenditure on plant, machinery, commercial vehicles and other qualifying equipment to be deducted from your profits before tax.

The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for AIA.

The AIA was permanently set at £200,000 for all qualifying expenditure on or after 1 January 2016. However, this limit has been temporarily increased to £1 million for a 2-year period from 1 January 2019 to 31 December 2020. This increased limit is a generous allowance and should cover the annual spend of most small and medium sized businesses. 

The AIA does not apply to purchases of cars.

If you are thinking of incurring large items of capital expenditure for your business over the coming months, you should ensure that any purchase is properly timed to take full advantage of the temporary increase in the AIA limit.