Annual Investment Allowance

Written on 5 December 2014

In the season of goodwill and cheer, it is good to hear in the Chancellor's Autumn Statement that the country's economy is continuing to grow.

To boost the economy, the Annual Investment Allowance ("AIA"), an allowance where 100% of the cost of qualifying assets can be written off against profits in the year of expenditure, was increased to £500,000 from 1st April 2014 for corporation tax and 6th April 2014 for partnerships, a policy that appears to be working in encouraging businesses to spend.

This increase to £500,000 is only available until 31 December 2015, after which it returns to a low of £25,000.

Where a business has a chargeable period that spans the date of end of the temporary increase on 31 December 2015, the maximum allowance for that business’s transitional chargeable period comprises two parts:

(a) The AIA entitlement, based on the temporary £500,000 annual cap for the portion of the period falling before 1 January 2016; and

(b) The AIA entitlement, based on the £25,000 cap for the portion of the period falling on or after 1 January 2016.

For example, a company with a 12 month chargeable period from 1 April 2015 to 31 March 2016 would calculate its maximum AIA entitlement based on:

(a) The proportion of the period from 1 April 2015 to 31 December 2015, that is, 9/12 x £500,000 = £375,000; and

(b) The proportion of the period from 1 January 2016 to 31 March 2016, that is 3/12 x £25,000 = £6,250.

So as you can see, it is worth taking into account both the change in the rate and the chargeable period. The allowance can be used to write off both integral features and plant and machinery.  Whilst the AIA is not available to all, most businesses are entitled to it. It is also only available to those entitled to claim capital allowances.

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