Temporary increase to the Annual Investment Allowance (AIA)

Annual Investment Allowance (AIA)

This measure will provide significantly faster tax relief for plant and machinery investments between £200,000 and £1 million, helping businesses to invest and grow.

The Chancellor has temporarily increased the Annual Investment Allowance from £200k to £1m from Jan 2019 - Jan 2021

New ventures could find themselves sitting on a significant windfall of CA's with this significant increase to AIA, meaning a much quicker relief for Capital Expenditure on items of 'Plant & Machinery'.

Background to the measure

Since its introduction in April 2008 the AIA ceiling has been set at £50,000, £100,000, £25,000, £250,000 and £500,000 before settling in January 2016 at the current £200,000 level.

The move is designed to stimulate business investment, but tax experts and bodies have raised concerns that the increase may bring only complexity for businesses whose expenditure is below the annual ceiling.

STAX have their team on hand to advise on these changes

As you would expect STAX has seen a significant increase in the amount of enquires relating to AIA, always on hand and happy to advise clients. If you have any questions on what this could mean for you give the team at STAX a call to discuss your options.

Current law

Since 1 April 2008 (Corporation Tax) and 6 April 2008 (Income Tax) most businesses, regardless of size, have been able to claim the AIA on their expenditure on plant or machinery, up to a specified annual amount each year (subject to certain conditions mentioned below). Summer Budget 2015 set the permanent limit of AIA to £200,000 from 1 January 2016.

Businesses are able to claim the AIA in respect of their expenditure on both main rate and ‘special rate’ plant and machinery. There are however certain exceptions, set out in section 38B of the Capital Allowances Act 2001 (CAA), the main exception being expenditure on cars.

The AIA is a 100 per cent upfront allowance that applies to qualifying expenditure up to a specified annual limit or cap. Where businesses spend more than the annual limit, any additional qualifying expenditure will attract relief under the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing-down allowances at the main rate or special rate respectively.

Proposed revisions

Legislation will be introduced in Finance Bill 2018 to temporarily increase the AIA limit to £1,000,000 from 1 January 2019 for 2 years.

Where a business has a chargeable period that spans either of:

i. the operative date of the increase to £1,000,000 on 1 January 2019, or

ii. the operative date of the reversion to £200,000 on 1 January 2021, transitional rules will apply.

(i) Chargeable periods spanning date of increase to £1,000,000

Where a business has a chargeable period that spans 1 January 2019, the maximum allowance for that business’s transitional chargeable period comprises 2 parts:

a) the AIA entitlement, based on the £200,000 cap for the portion of the period falling before 1 January 2019

b) the AIA entitlement, based on the temporary £1,000,000 annual cap for the portion of the period falling on or after 1 January 2019

The business’s maximum AIA for this transitional chargeable period would therefore be the total of (a) + (b).

Example

Where a business has a chargeable period from 1 July 2018 to 30 June 2019 the maximum AIA for this period would be £600,000 calculated as follows:

a) the proportion of the period from 1 July 2018 to 31 December 2018, that is, 6/12 x £200,000 = £100,000 and

b) the proportion of the period from 1 January 2019 to 30 June 2019, that is 6/12 x £1,000,000 = £500,000

£100,000 + £500,000 = £600,000.

However, in relation to (a) (the part period falling before 1 January 2019, no more than a maximum of £200,000 of the company’s actual expenditure in that particular part period would be covered by its transitional AIA entitlement (the maximum claimable before the increase to £500,000).

(ii) Chargeable periods spanning date of reversion to £200,000

Where a business has a chargeable period that spans the date of the end of the temporary increase on 31 December 2020, the maximum allowance for that business’s transitional chargeable period comprises 2 parts:

a) the AIA entitlement, based on the temporary £1,000,000 annual cap for the portion of the period falling before 1 January 2021, and

b) the AIA entitlement, based on the £200,000 cap for the portion of the period falling on or after 1 January 2021

(Information here is direct from the HMRC)

For further advice on this

Contact STAX - London 0207 1479 940 | Brighton 01273 044 038 | Plymouth 01752 922 038 | Glasgow 0131 605 4038