Businesses, regardless of size, have been able to claim the Annual Investment Allowance (AIA) on their expenditure each year on plant and machinery from April 2008 onwards. AIA is a 100 per cent allowance that applies to most qualifying expenditure (apart from cars) subject to an annual cap. Where the spend is more than the annual limit, any additional qualifying expenditure is dealt with under the normal capital allowances regime, subject to the main rate or the special rate pool WDAs at 20% or 10% (18% and 8% from April 2012) rates respectively. AIA is capped at £100,000 for the financial year ending March 2012 and £25,000 thereafter. In other words AIA will be reduced to £25,000 in a year with effect from 01 April 2012 for corporation tax purposes and from 6 April 2012 for income tax purposes. If a chargeable accounting period straddles the financial year for e.g. a business with an accounting period from 01 June 2011 to 31 May 2012, the AIA will be time-apportioned on a monthly or daily basis. This would restrict the AIA that can be claimed as follows:
| Chargeable accounting period | 01 June 2011 to 31 May 2012 |
|---|---|
| AIA for the period June 2011 to March 2012 (Current cap applies) |
10 months out of 12 months =10/12 x £100,000 = £ 83,334 |
| AIA for the period April 2012 to May 2012 (New cap applies) |
2 months out of 12 months =2/12 x £25,000 = £ 4,166 |
| Cap on total AIA for the chargeable period | £83,334 + £4,166 = £87,500 |
Business planning investments in plant and machinery could maximise their AIA benefits by incurring maximum expenditure, subject to the cap of £100,000, by 31 March 2012.
