In the forthcoming budget business owners will be interested to see if the Chancellor changes Annual Investment Allowances (AIA). AIA are Capital Allowances that allow a business to deduct the full value of an asset from their profits, before tax, in the financial year they’re purchased. AIA are currently set at £200,000 but they’ve been varied many times since 2008, ranging from £25,000 to £500,000. The last time they changed was in January 2016 when they reduced from £500,000 to £200,000. They were set at higher levels to stimulate business growth especially in the manufacturing sector that has a heavy reliance on capital equipment and machinery.
Even at £200,000 the saving for companies spending up to this amount on business assets can be as much as £40,000. This incentive can influence asset buying decisions. Unused AIA can’t be carried forward and many clients accelerate buying decisions to ensure they utilise their AIA.
Equipment, machinery and commercial vehicles qualify for AIA.
Assets financed on hire purchase and loans still qualify, as do cash purchases. Equipment, machinery and commercial vehicles also qualify, but assets that are subject to lease agreements generally do not.
There aren’t many Government incentives for businesses so it will be interesting to see if AIA are changed by Philip Hammond on Wednesday 8th March.