What is Annual Investment Allowance (AIA)?
The Annual Investment Allowance (AIA) gives you 100% tax relief upfront on qualifying business assets, like equipment, machinery, and commercial vehicles. In other words, AIA allows you to deduct the entire cost of these assets from your taxable profits in the year of purchase.
- AIA Limit: As of 2023, you can claim up to £1 million per year in AIA. This means you can immediately write off the full cost of qualifying assets, reducing your tax bill.
- Qualifying Assets: Most plant, machinery, and commercial vehicles qualify, but note that most cars are excluded.
At ABM Orkney, we can guide you through which purchases qualify and how to claim the maximum relief available to your business.
What is Depreciation (Writing Down Allowances, WDA)?
Depreciation, or Writing Down Allowances (WDA), spreads the cost of an asset over several years. You claim a percentage of the asset’s value each year rather than deducting the full amount immediately. This can be a useful strategy for businesses looking for long-term, consistent tax relief.
- Depreciation Rates: The main rate for WDA is 20% per year for most plant and machinery, with a 5% rate for special cases like high-emission vehicles or integral building features.
- Why Use Depreciation?: Depreciation spreads the tax relief over time, which can be better for businesses expecting steady or increasing profits in future years.
Need help navigating depreciation and choosing the right approach? Contact ABM Orkney for professional advice tailored to your business.
AIA vs. Depreciation: What’s the Difference?
Here’s a quick comparison to help you understand when AIA or Depreciation might be the right choice for your business:
| AIA | Depreciation (WDA) |
| Immediate tax relief in the year of purchase. | Tax relief is spread over multiple years. |
| Can deduct 100% of qualifying assets up to £1 million in the same year. | Claim a percentage (usually 20% or 5%) of the asset’s value each year. |
| Simple accounting: Write off the asset in one go. | Requires tracking depreciation over time. |
| Best for businesses with high profits in the year of purchase. | Ideal for businesses wanting to spread tax deductions over future years. |
At ABM Orkney, we’ll assess your financial position and help you decide which tax relief option works best for your business.
Why Choose AIA?
If your business is profitable and you’re looking to minimise your tax bill quickly, AIA might be the best option. Here’s why:
- Immediate cash flow boost: AIA can reduce your tax bill in the same year you make a purchase, freeing up cash to reinvest in your business.
- Simplified accounting: No need to track depreciation for years—claim AIA and be done with it!
- Maximise your savings: If your business had a strong financial year, claiming AIA can significantly lower your taxable profits, giving you a big tax break.
Why Choose Depreciation (WDA)?
Depreciation spreads the tax relief over time, which may suit businesses that want steady deductions in future years. You should consider depreciation if:
- You expect steady or increasing profits and want tax relief spread over multiple years.
- You’ve exceeded the AIA limit or purchased assets that don’t qualify for AIA, such as certain vehicles.
Whether you’re unsure about AIA or Depreciation, ABM Orkney is here to guide you through the process and make sure you’re claiming the right relief.
Can You Use Both AIA and Depreciation?
Yes! You can combine both options, using AIA for some assets and depreciation for others, depending on what makes the most sense for your business. Just remember, once you start depreciating an asset, you can’t go back and claim AIA on that same asset.
At ABM Orkney, we’ll take the complexity out of this process, ensuring you make the most of both AIA and Depreciation where applicable.
Why ABM Orkney?
Navigating tax reliefs can be tricky, especially when you’re trying to focus on running your business. That’s where ABM Orkney steps in. With our expert knowledge in bookkeeping, tax, and accounting, we’ll help you:
- Maximise your tax savings by choosing the right relief strategies for your business.
- Save time and reduce stress by handling the paperwork and ensuring everything is done correctly.
- Plan ahead for growth by optimizing your financial strategies for long-term success.
Need Help with AIA or Depreciation? Contact ABM Orkney!
Whether you’re looking to claim AIA, depreciation, or both, ABM Orkney is here to help you navigate the complexities and save your business money. Don’t leave tax savings on the table—reach out to us today to discuss how we can support your business with expert bookkeeping and accounting services.