Annual Investment Allowance Increase

The Annual Investment Allowance (AIA) gives tax relief at 100% on qualifying expenditure falling within a specified limit.

In the Budget on 29 October 2018 The Chancellor announced a temporary increase in the AIA to £1m. This increase will be in place for two years from 1 January 2019 & the rate is then expected to drop back down to the current £200,000.

This is great news for businesses planning expenditure on large items of plant or machinery, but care needs to be taken where the business’ accounting period straddles the dates of change, in particular for a period that straddles 1 January 2021.

Chargeable periods spanning 1 January 2019:

  • The maximum AIA across the whole period will be pro-rated for the period subject to the £200,000 cap and the period subject to the £1,000,000 cap.
  • In addition, only a maximum of £200,000 of that annual cap can be claimed in relation to expenditure before 1 January 2019.

For example: A business with a 30 June 2019 year end can claim up to £200,000 in relation to expenditure in the period to 31 January 2019, and an overall total of up to £600,000 (6/12 x £200,000 + 6/12 x £1million) can be claimed for the year to 30 June 2019.

Chargeable periods spanning 1 January 2021:

  • The maximum AIA is pro-rated for the period subject to the £1million cap and the period subject to the £200,000 cap.
  • The maximum amount that can be claimed for the period 1 January 2021 to the end of the chargeable period will be the pro-rated amount of the £200,000 cap.

For example: For a business with a 31 March 2021 year end, the maximum AIA for that accounting year is £800,000 (9/12 x £1million + 3/12 x £200,000).  But, only £50,000 can be claimed for expenditure between 1 January 2021 and 31 March 2021 (3/12 x £200,000).

There are other transitional rules that apply to groups of companies.