The Annual Investment Allowance (AIA) is due to fall from £500,000 to £200,000 with effect from 1 January 2016. Transitional rules will have an impact on the amount businesses can claim, so it is important to plan ahead if you want to receive the maximum tax benefit.

What is the AIA?

The AIA enables businesses to deduct the full cost of plant and machinery (excluding cars) from their profits in the year of purchase. It applies to businesses of any size and most business structures, but there are provisions to prevent multiple claiming. Businesses are able to allocate their AIA in any way they wish; so it is quite acceptable for them to set their allowance against expenditure qualifying for a lower rate of allowances (such as long life assets or integral features).

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