• Greenline Accountants

A look at Limited Company Expenses #1 : Annual Investment Allowance

"What expenses are allowable in my Limited Company?"


This is perhaps one of the most frequently asked client questions, and understandably so. The tax burden of owning and operating a limited company is getting heavier. With Corporation Tax rates set to increase as well as tax on profit extraction (i.e Dividends) increasing next year, now is the time for owner managed limited companies to start taking stock of what expenses a company can claim for to offset against corporation tax, and the personal tax implications of any benefit in kind.


We're going to periodically look at different types of expenses in this series, including what is allowable, as well as why certain expenses are not allowable. We'll also be introducing you to some of our associates who can help in each particular field.


As always, these articles are for information only and do not constitute formal advice - should you wish for detailed, specific guidance, please contact us directly to discuss your circumstances.


Lets start with the Annual Investment Allowance, or AIA. Most Plant and Machinery purchases will qualify for Annual Investment Allowance, with a limit of £1,000,000 per year (recently extended to January 2022 in the Autumn budget).


This means that the full cost of qualifying plant and machinery (up to a total of £1 million in a year) can be written off against profits - this is opposed to the old scheme of written down allowances, meaning you could only write a percentage off each year.


You can only claim AIA in the period you bought the item.

The date you bought it is:

  • when you signed the contract, if payment is due within less than 4 months

  • when payment’s due, if it’s due more than 4 months later

If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.


You cannot claim AIA on:

  • cars

  • items you owned for another reason before you started using them in your business

  • items given to you or your business

You can only claim AIA in the period you bought the item. i.e

  • when you signed the contract, if payment is due within less than 4 months

  • when payment’s due, if it’s due more than 4 months later

If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.


Finally on the AIA, you can elect not to use it, for instance if profits are low - instead you can revert to using written down allowances instead, i.e attributing a percentage of the cost of the new plant over several years to write off the value over time.


However, that's not all. The government introduced the SUPER DEDUCTION in April 2021, available for investment in NEW plant and machinery as part of the COVID recovery scheme - such that


From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

  • a 130% super-deduction capital allowance on qualifying plant and machinery investments

  • a 50% first-year allowance for qualifying special rate assets.

We have previously written about the super deduction in more detail here


https://www.greenlineaccountants.com/post/a-brief-guide-to-the-capital-allowance-super-deduction


So if you are considering new plant and machinery, the government has tried to incentivise companies to invest now with these tax breaks. Please contact us to find out more.


Our next Limited Company Expenses article will focus on Private Medical and Relevant Life Insurance