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Annual Investment Allowance

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Capital allowances on plant and machinery

Annual investment allowance

Businesses can claim an annual investment allowance for capital expenditure (AIA) incurred on most items of plant and machinery.

The annual investment allowance was introduced for expenditure incurred on or after 1 April 2008 for Corporation Tax or 6 April 2008 for Income Tax.

What you can and cannot claim for

Any new expenditure on plant and machinery assets bought after 1 April 2008 for Corporation Tax, or 6 April 2008 for Income Tax qualifies for annual investment allowance, apart from these exceptions:

  • cars
  • plant and machinery previously used for another purpose - for example, a computer used at home and introduced into your business
  • plant and machinery gifted to your business
  • expenditure incurred in the accounting period in which your business ceases

How much you can claim

The amount you can claim depends on when you incurred the expenditure as shown in the table below. However, please read this in conjunction with the section below entitled 'calculating the annual investment allowance'.

In most cases, for accounting periods starting on or after 1/6 April 2010 and ending on or before 31March/5 April 2012 if you have spent £100,000 or less in total on qualifying assets, you can claim an annual investment allowance for the whole amount. However, this is subject to certain restrictions. Also, although the reduction of the AIA to £25,000 will take effect from 1/6 April 2012 the AIA that can be claimed for any accounting period that spans the date of the decrease will be calculated under transitional rules and so may be less than £100,000.

Changes in the annual investment allowance

 For 1/6 April 2008 to 31 March/5 April 2010From 1/6 April 2010Planned limit from 1/6 April 2012
Annual Investment Allowance £50,000 £100,000 £25,000

If the total you have spent in the period is more than the appropriate limit, you can claim up to the limit as annual investment allowance and may be able to claim another allowance for the remaining balance.

Example: You are self-employed and preparing your Income Tax return for the accounting period 6 April 2009 to 5 April 2010. You spent £43,000 on 30 June 2009 on office furniture and printing machinery for your business. You can claim the entire sum of £43,000 as an annual investment allowance. However, if you had spent £55,000 you could have claimed £50,000 annual investment allowance and the temporary 40 per cent first-year allowance on the remaining £5,000, because the expenditure occurred in the 12-month period starting 1/6 April 2009.

Calculating the annual investment allowance

If your accounting period spans the date of a change in the annual investment allowance amount on 1/6 April 2010 or 1/6 April 2012 there are special rules to calculate the maximum amount you can claim.

There are also separate rules for calculating how much allowance you can claim if your accounting period was more or less than 12 months.

If your business is in a group or has related companies under common control and is liable to Corporation Tax, then only one annual investment allowance is available for the group or the related companies.

If you pay Income Tax and you or your partnership carries on two or more businesses that are related, then only one annual investment allowance is available for all the related businesses.

If an item is used partly for non-business use, you must reduce the amount you claim to reflect the expected non-business use.

You cannot claim the annual investment allowance for any expenditure on plant and machinery during the accounting period in which you stopped trading, or in which your company or organisation closed down.

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