The Annual Investment Allowance (or “AIA”) is a way for sole traders to claim tax relief for buying equipment. 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 how much your profit was and how much tax you need to pay on that profit.
Example of self-employed claiming AIA:
- let’s say that you buy a new laptop for your sole trader business
- the laptop costs £1,200
- let’s also say that your profit from self-employment is £20,000
- you can claim the annual investment allowance for the laptop, so you end up paying tax on £18,800 instead (£20,000-£1,200 = £18,800).
Two things to remember about claiming AIA:
- in the 2019/2020 tax year, you can only claim AIA up to £200,000 in total for the year
- not every piece of equipment qualifies for AIA. For example, cars don’t qualify for it, but you can get another capital allowance for them – spread out over several years instead of all at once. You can learn more about what qualifies from HMRC.