Can Annual Investment Allowance (AIA) be claimed on a lease purchase agreement?
Phillip Hammond in his budget this week has just introduced a big incentive to British businesses. He is increasing the Annual Investment Allowance from £200,000 to £1m from the 1st January 2019.
A key question being asked is can AIA be claimed when you lease equipment?
AIA and lease purchase or lease hire agreements
If you buy qualifying equipment via a lease purchase or hire purchase agreement, then yes, you can claim AIA. The key thing here is that on a lease purchase or hire purchase agreement, all the VAT is paid up front. All future rentals do not carry any VAT charge.
AIA and lease rental agreements
With a lease rental agreement – sometimes referred to as a lease hire – VAT is paid on each rental. Unfortunately, it cannot claim any Annual Investment Allowance.
My year end is the 31st March , what AIA can I claim?
The AIA is on a pro rata basis, hence you can claim 9/12 of £200,000 and then 3/12 of £1m, assuming you buy the asset via lease purchase or cash in January 2019.
If your year end is the 31st December and you purchased qualifying asset(s) in January 2019, you would be able to claim the full £1m.
Equipment leasing and AIA
We would always recommend that you seek advice from an accountant who understands AIA. Certain companies can qualify for the AIA and there are strict rules as to which assets qualify. Building fixtures such as air conditioning and office furniture do qualify. However, land, buildings and other changes to a building would not. You also cannot do a sale and leaseback of plant and machinery and then claim back your AIA.
Confusion over Annual Investment Allowance and leasing
Sadly, there is confusion and a difference of opinion with accountants regarding leasing and Annual Investment Allowance.
Nobody is disputing that you cannot claim AIA if you undertake a finance lease or lease rental agreement. The confusion is over lease purchase agreements. Technically, a supplier will invoice the leasing company directly, hence legal title in that equipment resides with the leasing company until all payments have been made. Often, a leasing company will charge a nominal £50.00 “option to purchase fee” at the end of the hire purchase term. Some people / accountants will argue you cannot claim the AIA as technically you do not own the asset.
Our understanding, backed up by other industry sector professionals and accountants, is that yes, as long as the agreement is lease purchase or hire purchase then AIA can still be claimed.
Thankyou Mr Hammond for helping British business and the leasing sector
By increasing the AIA to £1m from the 1st January 2019 (for a period of two years,) Mr Hammond has sent a clear message out to British business. Invest in capital equipment to help grow your company. We at WestWon would like to say thank you for helping companies to invest in a tax efficient scheme.
Use your AIA and benefit from leasing
Please call us at WestWon for more information how we can help you lease equipment, lease plant and machinery or even an office fit out. Please give us a call on 0116 243 8822 , or enquire online below!
