Annual Investment Allowance

/ 5 January 2013

David Whiscombe

The Annual Investment Allowance (“AIA”) is broadly speaking a Good Thing. If you qualify for it (which is likely to be the case if you are a company, an individual or a partnership consisting wholly of individuals) it allows you to write off the full amount of your capital expenditure on most items of plant or machinery (the main exception being cars) up to the maximum allowance. A group of companies gets only a single AIA to divvy up between members as it chooses: the same restriction can apply to companies under common control if they share premises or carry on “similar activities”.

The complication arises because the maximum value of the AIA has been going up and down like a… well let’s say like a jelly on springs ever since it was introduced: until last April it was £100,000; then it dropped to £25,000; now it’s back up (for the calendar years 2013 and 2014) to £250,000. The unwelcome consequence of this is that the rules governing how much relief you get for an accounting period which straddles the date on which the allowance changes are all but incomprehensible, and even more so when an accounting period straddles two such dates.

The key point to grab hold of is that when the allowance goes up (as it just did) you get the full benefit only for accounting periods starting after the change. This means that if, for example, you have an accounting date of 31 January, much more relief is available for expenditure incurred on 1 February 2013 than on 31 January 2013. How much more depends on what other expenditure has been incurred and when it was incurred: and of course if the expenditure is fairly modest, even the lower limit for the earlier period may be enough to give full write-off.

As we say, the transitional rules are horribly complex. But as a rule of thumb, if you are considering incurring capital expenditure on plant and machinery which will take the total over £50,000 in an accounting period which straddles 1 January 2013, and you have any discretion to defer the expenditure, talk to your usual contact partner.

David Whiscombe


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