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News - 21 December 2012

Annual Investment Allowances Ten things you should know.

As we reported on the 11 December, the Annual Investment Allowance (AIA) are to be increased for two years commencing 1 January 2013 from £25,000 to £250,000.

We asked our Tax and Accounts Managers to explain what this means.

What is an Annual Investment Allowance?

Tonmoy Kumar (TK), Manager of the Accounts Department of ABDS comments:
“An AIA is effectively a 100% first-year allowance for business expenditure on qualifying plant or machinery.”

What are they?

Stuart Coleman (SC), Manager of the Tax Department of ABDS comments:
“Qualifying plant or machinery covers almost all assets a person may buy for the purposes of his business. The only business assets not covered are land, buildings and cars.”

What is the maximum AIA you can claim?

(TK) Maximum AIA is:

£250,000 on expenditure from 1 January 2013 to 31 December 2014
£25,000 on expenditure incurred from 6 April 2012 (1 April 2012 for corporation tax purposes) to 31 December 2012
£100,000 on expenditure incurred from 6 April 2011 (1 April 2011) to 5 April 2012 (31 March 2012)
Maximum allowance is proportionately increased or reduced where the chargeable period is more than or less than a year.

Who can claim AIA?

(SC) It can be claimed by an individual, a company and a partnership of which all the members are individuals, carrying on a qualifying activity. They include:
ordinary property businesses
and employments or offices

Does it matter if the accounting period is different from the affected dates?

(TK) Transitional rules apply for chargeable periods which straddle the affected dates. For example a business with the year end 28 February 2013 would have three chargeable notional periods. The maximum AIA that this business would be eligible to claim on qualifying expenditure is £68,750 ((£100,000×1/12+£25,000×9/12+£250,000×2/12). However this amount is subject to an additional overriding rule for each notional chargeable period. The maximum allowance must be calculated as if the limit were for that period.

What about if more than the AIA limit is spent?

(SC)  Any additional expenditure is dealt with in the normal capital allowances regime, entering either the main rate or special rate pool, where it will attract writing-down allowances at the 18% or 8% rate respectively.

 Are there any restrictions?
(TK)  Businesses under common control and group of companies are entitled to only one AIA. It is not available on assets not used immediately in the trade, or on a transaction with a connected person, or in the chargeable period in which the qualifying activity is permanently discontinued.

Does AIA apply to energy saving machinery or plant?

(SC)  Investment in certain green technologies is eligible for enhanced capital allowances. These are in addition to the AIA allowance and, like the AIA, would be eligible for 100% tax relief in the first year. Just ask us at ABDS for examples.

At what point is expenditure treated as incurred?

(TK)  As soon as there is an unconditional obligation to pay, even if all or part of it is not required to be paid until some later date. However, expenditure is treated as incurred on a later date where any part of the expenditure is not required to be paid until a date more than four months after the date determined above.

What is the economic impact of AIA?

(SC)  The increase as laid out in the chancellor’s Autumn Statement should encourage small and medium size businesses to invest in plant and machinery, stimulating growth. For a higher rate taxpayer it would mean a 50% reduction of tax on any amount spent on qualifying equipment.

If you need any help and advice for your business on this or any other business related matter, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

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