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Can your business claim more than one AIA?

AIA limits

From April this year the annual investment allowance (AIA) was cut from £100,000 to just £25,000. Despite this, the AIA remains a useful tax break as it allows your business to claim a full deduction in one tax year for expenditure on equipment, which under the normal capital allowances rules would take around two decades to claim. But anti-avoidance rules can mean the £25,000 is unexpectedly reduced.

Related businesses

Where two or more businesses are under “common control” and are “related” they must share one AIA. Broadly speaking, companies are related where they either operate from the same premises or have similar trades. Companies are under common control if the same people own over 50% of the voting rights in each company. Similar rules apply to sole trader businesses and partnerships.

Example 1 - group companies

Acom Ltd owns all the shares in Bcom Ltd.They are therefore group companies for tax purposes. As they both operate from the same factory, Acom and Bcom are related companies and can only have one AIA of £25,000 between them.

Tip. The AIA can be allocated between related companies in any way, e.g. in our example above Acom could claim the lot, or Bcom could, or they could divide it in any way they see fit. They could also change the sharing ratio from year to year.

Example 2 - non-group companies

Jack owns 75% of Xcom, 60% of Ycom Ltd and 100% of Zcom Ltd. They are therefore under common control. As all the companies operate from the same factory they are related. All three companies must share a single £25,000 AIA.

Example 3 - unincorporated businesses

Ellen owns two clothes shops in two different towns. One deals in high-end fashion and the other everyday wear. The businesses are under common control because Ellen is the sole proprietor of both. And because they have similar trades, i.e. they are both retail clothing stores, they are related and must share one AIA.

Note. The Taxman uses the “NACE” international classification system to check whether businesses operate a similar trade (see The next step).

You don’t have to share

The AIA sharing rules don’t apply where the businesses under common control are of a different type, i.e. one is a partnership and one a company.

Trap. Where a partnership includes one or more limited companies as partners, the AIA can only be claimed by the companies, i.e. the partnership isn’t entitled to claim any.

Tip. In our third example Ellen could set up a company to operate one of her shops through and each business could claim £25,000 AIA. What’s more, she could open a third shop with a partner, say, her husband, who could take a nominal share of the profit and obtain a third tranche of AIA, making £75,000 in all.

For a link to the NACE classifications, visit http://tax.indicator.co.uk (TX 13.04.04).