When are companies connected for AIA purposes? What are the consequences of connection?  

A guide for subscribers.

At a glance

The Annual Investment Allowance (AIA) is a capital allowance that provides a taxpayer 100% tax relief on the purchase price of capital equipment for use in a business or employment.

  • From 1 January 2019 to 31 March 2023, the AIA is increased to £1,000,000.
  • Connected companies are only entitled to one AIA between them.
  • The companies can decide between them how to allocate that one AIA.

What's New?

From 1 January 2022:

  • The £1 million limit is extended to 31 March 2023. It was due to decrease to £200,000 from 1 January 2022.
  • Transitional rules will apply where a business has a tax period that spans 1 April 2023, when the limit reverts to £200,000.


Connection for AIA means any of the following, where applicable at the end of a subsidiary’s chargeable period:

  • Parent company (P) holds more than 50% of the voting rights of the subsidiary (S).
  • P is a member of S and can appoint or remove the majority of S directors.
  • P has the right to exercise, the power to exercise or does exercise a dominant influence over S.
  • P is a member of S and by some agreement with other shareholders controls the majority of the voting rights in S.

A person (A) controls two or more companies (C1 and C2) and C1 and C2 are related to one another at the end of C1 and/or C2’s chargeable period: C1 and C2 are connected.

Control means by the majority of:

  • Shares held.
  • Voting power.
  • By any other power conferred by some other document.

Related means the following:

  • C1 and C2 carry on qualifying activities from the same premises at the end of the relevant chargeable period of one or both of the companies or
  • More than 50% of both C1 and C2's turnover for the relevant chargeable period derives from similar activities. This means within the same NACE classification (European classification of economic activities).

Small print

The rules on Annual Investment Allowance including restrictions for connected parties are included in Chapter 5, section 51A et seq of the Capital Allowances Act 2001.


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