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Annual Investment Allowances

Well before the end of the next tax year in April 2019, thought could be given to maximizing capital allowance and therefore reduce profitability in your business (HMRC wont accept depreciation of assets but they do specify capital allowances).

One type of capital allowance is called annual investment allowance (AIA) and is worth up to £200,000 per year including a wide range of assets.

The most obvious in a business might be new computers,server systems or printers (there are a wide range of devices here that go into tech speak). However the point is the purchase cost of this capital expenditure IS something you can deduct from profits.The VAT element of the purchases is excluded unless you are not VAT registered. The other restriction here is that the allowance is only available in the year you purchase them; you cant claim them after a few years or if you brought the machinery into the business from outside. The allowance is only available on assets you have bought – not leased.

Another common use of AIA is the purchase of company vans or trucks but the vehicles must be used wholly for business use. If they are used by employees or directors for any private use there is a benefit in kind for which they will be charged income tax.

AIA is a useful mechanism to reduce tax liability but is mainly about cash flow as in following years that same item wont have any AIA allowance available. There are other allowances available and you can mix and match AIA with these.

I will talk about these in my next blog but you can get more detail here.