Businesses can claim immediate relief for capital expenditure on most items of plant and machinery by means of the annual investment allowance (AIA). Capital expenditure up to the AIA limit qualifies for a 100% deduction against profits. The AIA limit is £500,000 from 1 April 2014 for corporation tax purposes and 6 April 2014 for income tax purposes until 31 December 2015. From 1 January 2016 it is £200,000.
Transitional rules apply where an accounting period spans 1 January 2016.
Once the AIA has been used up relief is given by means of the writing down allowance. The AIA is not compulsory. Writing down allowances can be claimed instead.
The AIA cannot be claimed in respect of cars. However, a first-year allowance is available in respect of low emission cars.
Example:
Luca spends £5,000 on computers, printers and other office equipment for his business. He claims the AIA and obtains immediate relief for his expenditure.
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