Do multiple businesses have to share the annual investment allowance?

The annual investment allowance

The annual investment allowance (AIA) enables businesses to claim tax relief for the purchase of plant and machinery (P&M), with some exceptions, e.g. cars, much sooner than is allowed under the usual rules. Unless the AIA is claimed, tax relief on the purchase of P&M is spread over many years. In contrast, the AIA gives  business tax relief for the full cost of P&M for the accounting period in which it is bought.  The AIA is currently capped at £1m per year but this limit will fall to £200,000 from 1 January 2022.

Businesses are entitled to one AIA each but in some circumstances two or more businesses are required to share a single AIA.

Are the businesses related?

If two or more companies are “related” and in the same “group”, they can claim only one AIA between them. Companies are related if they either operate from the same premises or have very similar trades. Companies are part of a “group” where one of them owns a controlling stake in the other. Broadly, a controlling stake is one which allows the owner 50% or more of the voting rights of the other.

Example. Acom Ltd owns all the shares in Bcom Ltd. They are both based at the same address. Therefore, Acom and Bcom are related group companies and can only have one AIA between them. If there were more than two group companies, e.g. if Acom owned all the shares in Bcom and Ccom, the one AIA would have to be divided further.

The trap doesn’t just apply to group companies. Those which are controlled by the same person must also share one AIA.

Example. Andrew owns 75% of company A, 60% of company B, and 100% of company C. All the companies are under Andrew’s control and operate from the same premises and are therefore related and must share a single AIA .

Related companies can allocate the AIA however they want. For example, in the above example, company B can have all of the AIA and companies A and C none. The AIA doesn’t have to be shared between two or more companies if they are “associated” but not related.

Unincorporated business

There are similar rules for sole traders and partnerships. However, a sole trader who runs two or more unrelated businesses can claim an AIA for each. Unincorporated businesses are only related if they share premises and carry on similar activities. If an individual owns shares in a company, is a sole trader and a member of a partnership, each business gets an AIA even if they operate from the same premises and carry on similar activities.