Changes to the Annual Investment Allowance: getting the timing right

The Annual Investment Allowance (AIA) is due to fall from £500,000 to £200,000 with effect from 1 January 2016. Transitional rules will have an impact on the amount businesses can claim, so it is important to plan ahead if you want to receive the maximum tax benefit.


What is the AIA?
The AIA enables businesses to deduct the full cost of plant and machinery (excluding cars) from their profits in the year of purchase. It applies to businesses of any size and most business structures, but there are provisions to prevent multiple claiming. Businesses are able to allocate their AIA in any way they wish; so it is quite acceptable for them to set their allowance against expenditure qualifying for a lower rate of allowances (such as long life assets or integral features).

How much can I claim?
The AIA was temporarily increased to £500,000 from 1 April 2014 for companies or 6 April 2014 for unincorporated businesses, until 31 December 2015. It had been due to fall to £25,000 from 1 January 2016. However, in his Summer Budget on 8 July, the Chancellor announced that the AIA will instead be set at £200,000.

Accounting periods spanning the change
Where the accounting period spans 31 December 2015, the maximum amount of AIA entitlement is calculated on a pro-rata basis.
For example, if Brown & Co’s accounting period begins on 1 April 2015 and ends on 31 March 2016, approximately three quarters of that period would fall before the date of the change.


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