Farmer guide to using Annual Investment Allowance

The Annual Investment Allowance (AIA) for plant and machinery doubled to £500,000 in April 2014 but will reduce on 31 December 2015 – tax advisors say farmers looking to make significant investments may want to consider making purchases before the year ends.

David Chismon, director of tax advisors Saffery Champness, warned that the AIA had “yo-yoed” since its introduction in 2008 and said that timing was “of the essence in making any major capital purchase”.

However, he warned against businesses buying items they could not afford or were not needed just for the sake of the AIA and said not to let “the tax tail wag the dog”.

See also: What farmers need to know about Conservative tax plans

Where farmers were looking to make significant investments next year however, such as a new combine, it would be worth considering bringing the purchase forward to maximise the capital allowance relief.

What is the AIA?

It allows businesses to deduct the full value of an item from profits before tax. AIA can be used for items for the full cost of the items bought on hire purchase, provided the equipment is in use.

Not every item qualifies though – see below for what AIA can be claimed on.

What is the AIA set at?

Chancellor George Osborne increased the AIA from £250,000 to £500,000 in April 2014, but reduced it to £25,000 after 31 December 2015.

Since then he has made assurances that from January 2016 the AIA would be set at a more generous level than the £25,000. He is likely to announce the new figure in the forthcoming budget.

How much AIA can my business claim?

The AIA rate reduces during the accounting period depending on when a business’s year end falls.

Mr Chismon gave the following example:

A business with a year-end of 31 March will have a maximum £375,000 (nine-twelfths of £500,000) at the higher limit to end December 2015.

The allowance for the three months from end of December to 31 March 2016 will be at the new rate, which is not expected to be so generous.

Business with year-end of… AIA available until Dec 31 2015
December £500,000
January £458,333
February £416,667
March £375,000
April £333,333
May £291, 667
June £250,000
July £208,333
August £166,667
September £125,000
October £83,333
November £41,667

 What counts as plant and machinery?

  • Moveable plant and machinery, such as tractors, trailers and combines
  • Equipment inside buildings, for example a new milking parlour or slurry system
  • Items that you keep to use in your business, including cars
  • Costs of demolishing plant and machinery
  • Parts of a building considered integral, known as “integral features” as well as some fixtures
  • Alterations to a building to install other plant and machinery – this doesn’t include repairs

What can’t I claim on?

  • Things you lease – you must own them
  • Buildings, including doors, gates, shutters, mains water and gas systems
  • Land and structures, for example, bridges, roads and docks
  • Anything related to letting a residential property, unless it is a holiday lettings business or you are claiming on items in the common area of a residential building

How can I find out more?

The government’s website provides more information

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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