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The Annual Investment Allowance (AIA) increases from £25,000 to £250,000. The Chancellor in his Autumn Statement announced that from 1 January 2013 this will apply for a temporary period of 2 years to promote growth. This should enable firms to invest in the machinery they need to boost efficiency and make us competitive on the global stage. But, could it work for you?

AIA is available for businesses, being companies, partnerships and individuals (but not for a partnership that includes a corporate or a trust member). AIA offers 100% tax relief in respect of all expenditure that falls within its scope. The AIA is shared between UK Group companies. Companies calculate their AIA on an annual basis running from 1 April. Individuals and partnerships are treated in the same way, but the calculation period runs from 6 April.

AIA is available on capital expenditure in both the special rate and general capital allowance pools. The main exception is that AIA is not available on cars.

Here’s a summary of the AIA levels over the past few years

From 1 January 2013                                    250,000
1 April 2012 to 31 December 2012            25,000
1 April 2010 to 31 March 2012                    100,0000

You can see that the government has been unable to resist the temptation to meddle with the AIA ever since its introduction, but the good news is that it is now more generous than ever.

The technical bit
If a company has a 31 December year end then it is able to claim a maximum of £250,000 AIA in both 2013 and 2014.

When an accounting period straddles 31 December, an apportionment of the old and new rates is required and care must be taken as to when the capital expenditure was incurred.

A 30 June 2013 year end would have AIA available of £137,500 calculated as 6 months of £25,000 and 6 months of £250,000. Up to 31 December 2012, a maximum of £25,000 of capital spend can qualify for the AIA as this was the rate in force at that time. If all spend was post 1 January 2013, then the full £137,500 can be claimed.

The accounting periods of some companies will straddle both the AIA reduction to £25,000 from April 2012 and the increase from January 2013. These periods will have two transitions and a more complex calculation.

A year end of 28 February 2013 will have an element of the AIA at £100,000, £25,000 and £250,000. The AIA available would be £68,750, calculated as 1 month of £100,000, 9 months of £25,000 and 2 months of £250,000. For the period April 2012 to December 2012, the maximum AIA spend that can be claimed is £22,917 (being 11 months of £25,000, in accordance with the transition rules for the reduction, as we thought the rate would be £25,000 for the period after 31 March 2012).

There are anti-avoidance provisions within the Capital Allowances Act which stop businesses from manipulating the rules to increase their AIA entitlement.

If you would like help in maximising your AIA claim, the Corporate Tax Team here at Reeves (who do quite genuinely find this stuff fascinating!) will be only too happy to help.

Should you wish to know more, please do not hesitate to contact Margaret Connolly at Reeves 01227 768231 or email