Annual investment allowance (AIA)
Annual investment allowance (AIA) was originally introduced in Finance Act 2008. It entitles small and medium-sized entities to claim 100% relief on capital expenditure up to certain monetary limits.
This useful relief allowed 100% deduction of the first £50,000 of qualifying expenditure on plant and machinery. It was then increased to £100,000 from April 2010 but as of April 2012 will be reduced to £25,000. If the basis period straddles 1 April for companies, or 6 April for unincorporated entities, AIA must be time-apportioned accordingly. Where a chargeable period straddles 1 or 6 April as appropriate (the 'relevant date'), the maximum AIA is time-apportioned by considering how much of the chargeable period falls before the relevant date and how much after.
However, for expenditure actually incurred before the relevant date, the maximum is calculated as if the increase in AIA had not taken place. For example, in most cases (ignoring short accounting periods), for accounting periods straddling the 2011 relevant date, the maximum AIA for expenditure incurred before the relevant date will be restricted to £100,000.
AIA allocation example
Acme Manufacturing has a year-end of 31 December and during the period ended 31 December 2010 incurred the following capital expenditure:
1 March 2010, new truck: £30,000
1 November 2010, new lathe: £15,000
As the accounting period straddles 1 April 2010 and the AIA thresholds are different for the two periods, the AIA threshold for each component period must be established, as follows:
1 January to 31 March 2010:
£50,000 x 3/12 = £12,500
1 April to 31 December 2010:
£100,000 x 9/12 = £75,000