The Annual Investment Allowance (“AIA”) allows most business to claim 100% capital allowances on qualifying expenditure. This means if your business buys certain types of equipment that qualify for the AIA, you can deduct 100% of the cost of that asset from your business’s profit before you work out how much tax is due on that profit.
HMRC rules say that: “You can claim capital allowances when you buy assets that you keep to use in your business,” such as:
For small businesses, this means you can claim on specific items of expenditure such as laptops, computer equipment and servers, office furniture etc.
If your business is VAT Registered, you can claim the AIA on the total cost of the asset less any VAT you can reclaim on that asset. If your business isn’t VAT registered, you claim the AIA on the total cost of the asset, including VAT.
From 1st April 2021, a new ‘super-deduction’ Corporation Tax relief was announced for limited companies. The super-deduction is not available to sole traders, who can continue to use the Annual Investment Allowance (see above).
The super-deduction offers 130 per cent first-year relief for qualifying expenditure on plant and machinery from 1st April 2021 until 31st March 2023.
By way of example, a small business purchasing a qualifying asset (such as a laptop) for £1,000 after 1st April 2021 will now receive £247 in Corporation Tax relief under the new ‘super-deduction’ tax relief. Under the AIA, the equivalent amount of corporation tax relief was £190.