A manufacturing business purchased £50,000 of machinery, upgraded its computer systems, and acquired a van. The owner has heard about capital allowances but is unsure how they work or whether all purchases qualify. Could you please tell me what assets will qualify and how the annual investment allowance (AIA) works? Also, are company vehicles treated differently?
Arthur replies:
The AIA allows a business to deduct 100% of the cost of qualifying plant and machinery from its taxable profits in the year the expenditure is incurred, up to the annual AIA limit (currently £1m per year). The machinery, computer systems and company van should all be eligible for the AIA. However, company cars do not usually qualify. But if they are zero-emission cars, then they could qualify for 100% first-year allowances.
