The Annual Investment Allowance is 100% allowance for the first charge of expenditure on plant and machinery, and it was introduced with those other huge changes in 2008.

It’s available for any size business, from a smallest to the largest, but it’s only one per group of companies, so the mighty BP, for example, would only have one AIA in the whole of its group.

It’s very important that we remind people that it’s not available for cars, but it does cover other plant including the FITABs features integral to a building and long‑life assets.

We saw that with the fact from the 1st of January 2016, the AIA was reduced from £500,000 per annum to £200,000 per annum.

What we need to understand is what happens when the AIA changes and how that works across successive accounting periods, especially if the accounting period straddles two levels of the AIA.

Let’s have a look in the example here. We got a company accounting period from the 1st of April ’15 to the 31st of March ’16. In very simple terms, we’ve got nine‑twelfths at the old rate, and three‑twelfths at the new rate.

The maximum AIA is £425,000 over that 12‑month accounting period, but there is a hitch. It depends on when the expenditure was made.

If you make your expenditure, all of your expenditure up to £425,000, within the first nine months, that is, before the 1st January 2016, you can have the whole of the £425.000, but if you incur expenditure in the last three months of the straddle period, then the maximum that you can put away against the AIA is reduced to £50,000.

Everything else will just have to be conventional writing down allowances.

Businesses have an AIA for the first £25,000 of their expenditure on most P&M for 2012-13 (£100,000 for April 2010 to April 2012). The Chancellor announced on 5 December 2012 that the sum of £25,000 was to be increased to £250,000 for two years with effect from 1 January 2013. This increased amount was increased further.

In the event the accounting period straddles the old and new allowances, the allowance should be apportioned. For example, a business with an accounting period from 1 January 2012 to 31 December 2012 would require a split in its maximum AIA entitlement as follows:

1. the proportion for the period 1 January 2012 to 5 April 2012, i.e., 3/12 x £100,000 = £25,000;


2. the proportion from 6 April 2012 to 31 December 2012, i.e., 9/12 x £25,000 = £18,750.

Therefore, the maximum AIA available would be the total of (a) + (b) = £25,000 + £18,750 = £43,750.

The Chancellor announced that the period for the temporary increase in the AIA would be extended to 31 December 2015. Also, the sum of ₤250,000 has been increased to ₤500,000 in respect of any expenditure incurred on or after 1 April 2014 for corporation tax or 6 April 2014 for income tax.

AIA is not for Cars

For expenditure incurred on cars, costs are generally allocated to one of the two plant and machinery pools. For expenditure incurred on or after 6 April 2013 (1 April 2013 for corporation tax) cars with CO2 emissions not exceeding 130gm/km (previously 160gm/km) receive an 18% allowance per annum. Cars with CO2 emissions over 130gm/km (160gm/km) receive an 8% allowance per annum.