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Annual Investment Allowance (AIA)

The Annual Investment Allowance (or “AIA”) is a tax relief. It can be claimed by sole traders, limited companies and partnerships. If you’re a sole trader, you can claim it for buying equipment that you use for your business. It’s a kind of capital allowance.

If you buy a piece of equipment that qualifies for the AIA, you can deduct 100% of its cost when you calculate your profit was and how much tax you need to pay on that profit. The types of equipment that are usually eligible for the AIA are things like tools and machinery.

Why mainly tools and machinery?

When the AIA was introduced in 2008, it was primarily to encourage businesses to invest in PPE (property, plant and equipment) to push economic growth. Here are some examples of what you can claim back:

  • Computers
  • Land
  • Machinery
  • Office furniture
  • Some vehicles
  • Air conditioning
  • Farming equipment

The Annual Investment Allowance in action

  • You buy a new laptop for your sole trader business
  • The laptop costs £1,200
  • Your overall profit from self-employment is £20,000
  • You can claim the Annual Investment Allowance for the laptop (i.e. you can deduct the cost of the laptop from your earnings) 
  • In tax, you only have to calculate what you owe on £18,800 (£20,000-£1,200)

Things to remember about claiming

Here are a couple of things to be aware of before you claim AIA:

  • In the 2021/2022 tax year, you can only claim AIA up to £200,000 in total for the year
  • Not every piece of equipment qualifies for AIA

One of the things that doesn’t qualify for AIA is a car; however, you can claim writing down allowances for this instead. This allows you to make a claim spread out over several years instead of all at once. Read more about the specifics of claiming AIA via HMRC online.

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