Annual Investment Allowance 2023/24
The Annual Investment Allowance 2023/23 is £1,000,000 and in the Autumn Statement was made permanent.
What you might not know is that it is permitted to claim the Annual Investment Allowance and spread the capital cost by using asset finance.
What is the Annual Investment Allowance 2023/24?
The Annual Investment Allowance is a capital allowance for UK businesses that enables them to offset 100% of the cost of newly acquired assets such as plant, machinery, equipment & commercial vehicles in the first year of ownership.
This provides a welcome tax break and a boost to the cash-flow of SME businesses, reducing their income/corporation tax liability directly in proportion to their capital investment for the current financial year.
Why is the Annual Investment Allowance good for my business?
It’s a question of tax planning i.e. when your business has to pay tax and how much tax it has to pay.
As a rule, most businesses want to reduce their next tax bill to the lowest possible level. To achieve this they use capital allowances to offset the cost of purchasing new assets against their profits. The problem however is that traditional capital allowances limit the amount that can be claimed in any one financial year i.e. 18% of the cost per annum.
This is where the Annual Investment Allowance comes in, enabling businesses to write off the total cost during the current financial year, reducing their next tax bill and therefore improving their cash-flow.
The Annual Investment Allowance and Asset Finance
Most companies use third-party finance and take out loans and leases to expand or acquire.
As far as the Annual Investment Allowance is concerned, it’s important to use the right type of finance:
- Leases – finance leases, operating leases, fixed and minimum term leases, rental agreements – don’t qualify
- Purchases – hire purchase, lease purchase – do qualify
To qualify for the Annual Investment Allowance the agreement will need to have intent to ownership so be careful not to get confused, especially given the generic use of the word “lease” in both types of agreement.
Will my business qualify?
The Annual Investment Allowance 2016 is available to most UK businesses including:
- Sole Traders
Mixed partnerships (those containing companies and individuals) and Trusts are specifically excluded.
The type of business you run is irrelevant providing you trade as one of the above entities and purchase an eligible asset during the qualifying period.
The Annual Investment Allowance 2023/24 applies equally to:
- Dentists, Doctors, Private Hospitals and Healthcare Professionals
- Laboratories, Research Establishments, Pharmaceutical Business
- Farmers, Growers, Agricultural Businesses, Food & Drink Producers
- Manufacturers, Workshops, Production & Assembly Businesses
- Transport & Distribution Companies, Hauliers, Couriers
- Shops & Retail Businesses, Hotels, Pubs and Leisure Businesses
What assets qualify for the AIA?
With the specific exclusion of company cars, most types of asset will qualify for the Annual Investment Allowance including:
- Dental, Medical, Scientific, Veterinary Equipment
- Office Furniture, Office Equipment, IT & Computers, AV Equipment
- Commercial Vehicles, HGVs, Trucks, Fork Lift Trucks, Trailers, Vans
- Construction Plant, Cranes, Dozers, Mixers, Crushers, Graders, Generators
- Farm Machinery, Tractors, Harvesters, Plows, Mowers, Balers
- Warehouse Management Systems, Palletisers, Robotics, Conveyors
- Manufacturing Plant, Production & Assembly Systems
- CNC Machinery, Workshop Machinery, Presses, Guillotines, Drills, Saws
Items that are gifted to the business or used for another purpose beforehand, for example at home, are excluded as are assets acquired in the period the business ceases trading.
Used or second hand machinery and the Annual Investment Allowance
It’s an interesting question and given that capital allowances would usually have been claimed already then it’s easy to understand why there might be some confusion.
In reality however the situation is quite simple. Providing the used machinery is new to your business and has been purchased then it is treated in exactly the same way as new machinery and would qualify fully for the Annual Investment Allowance.
What about machinery & equipment purchased from abroad?
Again, this is simple and straightforward.
The answer is that machinery from Europe, the United States, China or anywhere else in the world, imported into the UK and purchased by a UK business would qualify for the Annual Investment Allowance.
Are there any circumstances when using the AIA is not a good idea?
Most SME business would be well advised to utilise the Annual Investment Allowance providing their total capital expenditure for the period is within the new limit of £1,000,000.
Larger more complex businesses that regularly exceed this amount might achieve a better tax position by leasing their equipment over the useful life of the asset. This may be especially relevant to assets that depreciate heavily such as computers and IT systems or in cases where machinery is needed for a short term contract, say a trial production of pharmaceuticals.
Start up businesses short of cash might also do well to consider leasing even though it won’t qualify for the Annual Investment Allowance. For most businesses in this category the acceleration of capital allowance is likely to be less important that the initial cash outlay which is generally less for a lease agreement.
What about VAT?
If you are VAT registered and can recover the VAT on the asset you purchase then it will be the net cost that qualifies for the Annual Investment Allowance.
If however you are not VAT registered or VAT exempt and cannot recover VAT, then it will be the price including VAT that qualifies.
Qualifying Asset Finance Agreements
At TeleLease we offer a range of finance agreements that qualify for the Annual Investment Allowance enabling you to reduce your next tax bill and spread the capital cost over up to seven years, depending on the asset in question.
We offer no deposit, low deposit, fixed and variable rate agreements which clearly show intent to purchase with a pre determined purchase fee noted on the document.
Getting Professional Advice
We recommend that you seek professional advice from an accountant or financial advisor before entering into any finance agreement and would be pleased to answer any questions your accountant might have.
Asset finance offered by TeleLease is available to businesses only and is subject to credit approval. Terms & conditions apply.
If you have any questions whatsoever regarding the asset finance options we offer and how they apply to the Annual Investment Allowance then please call us today on 03300 580151 or 07775 925925 from UK mobiles or email to email@example.com .