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Annual Investment Allowance Explained: Tax Relief for Small Businesses

In the Autumn Statement, the Government announced a huge increase in the Annual Investment Allowance; from January 1st 2013 the maximum amount a business can deduct from its taxable profits will increase from £25,000 to £250,000 for two years.

The increase is intended to encourage investment, particularly by small – medium sized businesses, and is ultimately designed to stimulate the UK’s economic growth.

It is estimated that the allowance costs the government about £2 billion, and it is undeniably a valuable tax incentive for businesses.

What exactly is the Annual Investment Allowance?

The AIA is a form of capital allowance. It is a 100% first-year allowance for business expenditure on qualifying plant or machinery.

‘Qualifying plant or machinery’ means any asset bought for business purposes. That said, there are some notable exceptions. Cars, land, buildings, for example, are not included.

Who qualifies for the allowance?

Most kinds of businesses can claim the allowance. To qualify, the individual or company must be ‘carrying on a qualifying activity’.  This includes: trades, professions, vocations, ordinary property businesses, and employment or offices.

Trusts and mixed partnerships (that is, partnerships of which a company is a member) do NOT qualify for the allowance.

Here’s a useful document by HMRC setting out the details of the allowance.

Do not miss out on this sizable tax relief. Contact us for more information and advice on the Annual Investment Allowance on 020 8780 2349.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstances.

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