Writing Down Allowances vs Annual Investment Allowances

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Annual Investment Allowance (AIA)

  • AIA provides a tax incentive for businesses to invest in capital assets by allowing them to deduct the full cost of qualifying assets from their taxable profits in the year of purchase.
  • The AIA threshold, which determines the maximum amount that can be claimed, can change from year to year. The current AIA is £1 million, which has been in place since 1st January 2019.
  • The AIA is available for most tangible capital assets, however, it is typically more advantageous to claim AIA on assets which would typically qualifying for Special Rate Pool Allowances as it accelerates the capital allowances claimed.
  • It can be especially advantageous for small and medium-sized enterprises (SMEs) and businesses with substantial capital expenditures since it allows for significant upfront tax relief.
  • Expenditure qualifying for Structures and Buildings Allowances are not eligible to be included within the AIA pool.

Writing Down Allowances (WDAs)

  • WDAs are the standard method for claiming capital allowances tax relief on the cost of capital assets that don’t qualify for the AIA or exceed the AIA threshold.
  • WDAs allow businesses to claim tax relief on the depreciation of the asset’s value over time, typically based on fixed rates set by the government. These rates can vary depending on the type of asset. The information on these different pools and their relevant rates are shown above.
  • Unlike the AIA, WDAs spread the tax relief over several years rather than allowing for an immediate deduction of the full cost. This means that the tax benefit is realised gradually over the asset’s useful life.

START YOUR CAPITAL ALLOWANCES CLAIM TODAY

Claiming capital allowances may seem hard at first, but at the BSE Group, we’re here to help you through the process. Our time within the financial field has given us the expertise needed to help your business claim tax relief. Our services help businesses across the UK to boost their performance, allocating the tax relief gained towards more important projects.

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