The Annual Investment Allowance - giving a tax incentive to invest ....

7th Sep 2010

Scope of the Annual Investment Allowance (AIA)

The AIA now offers full and immediate tax relief (similar in effect to a repair cost) for all sizes of business, for the first £100,000 of expenditure on plant and machinery in the year. Before April 2010 the figure was £50,000.
Cars and expenditure on ‘green’ technology continue to be treated separately, but the AIA is available for expenditure on all other plant and machinery, including long-life assets and ‘integral features’.
The figure of £100,000 is proportionately increased or reduced if the chargeable period is greater or shorter than one year (This has important implications for periods of account spanning the increase in the relief in April 2010)
In such cases, an apportionment is to be made and in some circumstances a restriction is imposed. Suppose, for example, that a company draws up accounts for the year to 31 December 2010. In this case, the year should be split into two notional periods for the purposes of calculating the entitlement to AIAs. The first notional period will run from 1 January to 31 March 2010 (a period of 90 days) and the second will run from 1 April to 31 December 2010 (275 days). The maximum overall allowance is then calculated by aggregating the two figures, as follows:
    •           £50,000 x 90/365 = £12,329; plus
    •           £100,000 x 275/365 = £75,342.
Thus the maximum overall allowance would be £87,671. A restriction is also imposed on the maximum amount of AIA that may be claimed for expenditure incurred before 1 April 2010: a maximum of only £50,000 of such expenditure may be subject to an AIA claim.
This article provides only a broad summary of the rules and should not be relied upon. Specific advice should always be sought in relation to your own circumstances.
 

Author: Emma Glover (emma.glover@rowlandsaccountants.co.uk)

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