CA23085 - PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: claims and amounts

CAA01/S38A and S38B, S51A to S51N

Maximum allowance

For current and historical maximum AIA figures see 'Claim capital allowances - Annual investment allowance', gov.uk.

Apportionments

Chargeable periods of more or less than a year

Where the chargeable period is more or less than a year, the maximum AIA is proportionately increased or reduced. For example:

  • if a company’s first chargeable period started on 1 January 2023 and ran for only 6 months, its maximum AIA entitlement for that period would be 6/12 X £1 million = £500,000.
  • if a sole trader had a long chargeable period of 18 months, also starting 1 January 2023, his maximum AIA for that period would be 1.5 X £1 million = £1.5 million.

Chargeable periods that straddle a rate change

Similarly, if a taxpayer's chargeable period straddles a date on which the annual amount is changed (see above link), the taxpayer's AIA entitlement should be time apportioned. 

Please note: The relevant AIA legislation (CAA01/S51A (6)) does not specifically require that the maximum AIA should be time-apportioned on a daily basis. In the context of working out a business’s maximum AIA entitlement, therefore, HMRC will accept that it is just and reasonable to make the calculation on either a daily or monthly basis, in cases where the period in question consists of whole calendar months. In other cases, an apportionment made on a daily basis will be required, as this will ensure an appropriate level of consistency and fairness between taxpayers. However, please remember that in other contexts - for example, for the purposes of calculating the hybrid rate of WDA for a transitional chargeable period - the relevant legislation specifically requires that apportionments must be made on the basis of days.

Example

Ryan Ltd. draws up its accounts for the period 1 October 2018 to 30 September 2019. Its maximum AIA entitlement is based on

  • the proportion of a year from 1 October 2018 to 31 December 2018, that is, 3/12 x £200,000 = £50,000.
  • the proportion of a year from 1 January 2019 to 30 September 2019, that is, 9/12 x £1 million = £750,000.

Its maximum AIA for this particular transitional chargeable period would therefore be the total of (a) + (b) = £50,000 + £750,000 = £800,000.

However, Ryan Ltd. can claim no more than £200,000 AIA in relation to qualifying expenditure incurred from 1 October 2018 to 31 December 2018.

Timing of AIA claims

The AIA may only be claimed in the chargeable period in which the qualifying expenditure is incurred (CAA01/S51A(2)) or treated as incurred (CAA01/S12), so any unused balance of an AIA cannot be carried forward for use in a later chargeable period. (But a business that is a loss-maker may, of course, claim the AIA in full, to augment the loss it carries forward.)

Partial AIA claims

Businesses may choose whether or not to claim the AIA or to claim part only of their AIA if they so wish (CAA01/S51A(7)).

It is also acceptable to claim AIA for part of the cost of an asset and to claim a first-year allowance (if available) for the remaining cost or to pool the remaining cost for the purpose of claiming WDAs at the appropriate rate.

Example 

Icarus Airways Ltd. buys an aeroplane for £4 million in its year ended 31 December 2023. It is a long life asset and therefore a special rate asset (CA23210). 

For the year ended 31 December 2023, Icarus Airways Ltd. claimed AIA for £1 million of the expenditure and a 50% first-year allowance for the remaining £3 million of the expenditure (an allowance of £1.5 million) (CA23174AA).

The company may pool the residual £1.5 million in the following year, the year ending 31 December 2024, for the purpose of claiming special rate WDAs from then on.  

Restrictions on AIA entitlement

A person’s entitlement to an AIA may be restricted in the circumstances described at CA23087.