Tue 01 Apr 2014
Yet again we had a Budget announcing a change in the amount of the annual investment allowance. From 1 April 2014 the AIA increases from £250,000 to £500,000.
The amount of the AIA, which was due to remain at £250k until December 2014 before reverting to £25k, has varied wildly since introduction:
| 1 April 2008 to 31 March 2010 | £50,000 |
| 1 April 2010 to 31 March 2012 | £100,000 |
| 1 April to 31 December 2012 | £25,000 |
| 1 January 2013 to 31 March 2014 | £250,000 |
| 1 April 2014 to 31 December 2015 | £500,000 |
| From 1 January 2016 (in the absence of any further change) | £25,000 |
Special provisions for periods including a date of change
The overall AIA entitlement for a period during which the AIA increases or reduces is calculated on a pro rata basis. However, where there is a change in the amount of the AIA, transitional rules can mean that the actual amount of AIA is less than the pro-rated total. So for example, for accounting periods staggering 1 or 6 April 2014, the maximum expenditure in the pre April period qualifying for the AIA is £250,000, as that was the absolute ceiling at the time. Timing of expenditure thus has a significant impact on the amount of the AIA which is available. See the examples in TIIN A32 for more details.
Thus, great care will be required come the end of the £500,000 limit as the rules for the later part of a period are restrictive.
To illustrate, the maximum AIA entitlements for accounting periods of one year to 31 December 2014 and 31 March 2016 are as follows:
| AP | Overall maximum | In first part | In second part |
| y/e 31.12.14 | £437,500 (3/12 x 250k + 9/12 x 500k) | £250,000 | £500,000 |
| y/e 31.3.16 | £381,250 (9/12 x 500k + 3/12 x 25k) | £500,000 | £6,250 from 1 Jan 2016(3/12 x £25k) |
Clearly this is not an immediate issue but companies and businesses with year ends other than calendar years will need to be made aware of the drastic impact on the level of the AIA on expenditure incurred after the £500k comes to an end.
As observed on many occasions, the AIA is particularly valuable for expenditure that is added to the special rate pool. At £500k this will permit significant buildings expenditure on features to be relieved immediately. Therefore, any businesses intending refurbishments of property with significant spend on integral features should seriously consider the timing of their expenditure to take maximum advantage of the increased AIA.
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