Guidance

Annual investment allowance: limit changes during accounting periods

There are special rules to follow if the maximum amount of annual investment allowance (AIA) changes in the period you draw up accounts for.

Special rules when the maximum amount of AIA changes

Use these rules to work out how much AIA you can claim if the maximum amount of AIA changes during the period you draw up your accounts for (your accounting period).

Some accounting periods might:

  • not include any date that the maximum amount of AIA changed
  • include 1 date that the maximum amount of AIA changed
  • include 2 dates that the maximum amount of AIA changed

When the maximum allowance of AIA changes during your accounting period, follow these steps to work out how much you can claim:

  1. Divide your accounting period into parts.
  2. Work out the maximum amount of AIA for each part.
  3. Add them together to work out the total for the whole period.
  4. Check if there are any restrictions depending on when you incurred the expense.

Divide your accounting period into parts

Each part starts either on:

  • the first day of your accounting period
  • the day the AIA changes

Each part ends on either:

  • the day before the AIA changes
  • the end of your accounting period

Once you’ve worked out the parts, work out how much AIA you can claim for each part.

Use days or months in your calculations

If your accounting period is made up of whole calendar months, make the calculation of the parts on either a daily or monthly basis. If your accounting period isn’t made up of whole calendar months, work out the parts on a daily basis.

Examples

Example 1

The maximum amount of AIA for companies changed from £100,000 to £25,000 on 1 April 2012.

Draw up your company accounts for the 12 month period 1 January 2012 to 31 December 2012.

1. Divide your accounting period into parts.

The first part starts on the first day of your accounts and ends on the day before the maximum amount changed.

That’s 1 January 2012 to 31 March 2012.

The next part starts on the day the maximum amount of AIA changed and ends on the last day of your accounts.

That’s 1 April 2012 to 31 December 2012.

2. Work out how much AIA you can claim for each part.

For 1 January 2012 to 31 March 2012 you have 3 months of a year at £100,000.

That’s 3/12 x £100,000 = £25,000.

For 1 April 2012 to 31 December 2012 you have 9 months of a year at £25,000.

That’s 9/12 x £25,000 = £18,750.

3. Add the amounts together.

Your maximum AIA for this period is £25,000 + £18,750 = £43,750.

4. Check if there are any restrictions depending on when you incurred the expense.

If you only have expenditure after 1 April your maximum AIA can’t be more than £18,750.

Example 2

The maximum amount of AIA increased from £25,000 to £250,000 for expenditure you incurred on or after 1 January 2013.

Your accounts are for the period from 1 July 2012 to 30 June 2013.

1. Divide your accounting period into parts.

The first part starts on the first day of your accounting period and ends on the day before the amount of AIA changed.

That’s 1 July 2012 to 31 December 2012.

The next part starts on the day the maximum amount of AIA changes and ends on the last day of your accounting period.

That’s 1 January 2013 to 30 June 2013.

2. Work out how much AIA you can claim for each part.

From 1 July 2012 to 31 December 2012, you have 6 months at £25,000 per year.

That’s 6/12 x £25,000 = £12,500.

From 1 January 2013 to 30 June 2013, you have 6 months at £250,000 per year.

That’s 6/12 x £250,000 = £125,000.

3. Add the amounts together.

Your maximum AIA for this period is £12,500 + £125,000 = £137,500.

4. Check if there are any restrictions depending on when you incurred the expense.

If you only incur expenditure from 1July to 31 December 2012, the maximum amount of AIA you can claim is restricted to £25,000. This was the maximum AIA claimable for the period before the increase to £250,000.

Example 3

The maximum amount of AIA increased from £250,000 to £500,000 for a temporary period from 1 April 2014 (for Corporation Tax) or 6 April 2014 (for Income Tax) until it changes to £200,000 on 1 January 2016.

Your company’s accounts are for the 12 month period 1 January 2014 to 31 December 2014.

1. Divide your accounting period into parts.

The first part starts on the first day of the accounting period and ends on the day before the amount of AIA changed.

That’s 1 January 2014 to 31 March 2014.

The next part starts on the day the maximum amount of AIA changes and ends on the last day of your accounting period.

That’s 1 April 2014 to 31 December 2014.

2. Work out the amount of AIA you can claim for each part.

From 1 January 2014 to 31 March 2014, you have 3 months at £250,000 per year.

That’s 3/12 x £250,000 = £62,500.

From 1 April 2014 to 31 December 2014, you have 9 months at £500,000 per year.

That’s 9/12 x £500,000 = £375,000.

3. Add the amounts together.

Your maximum AIA for this period is £62,500 + £375,000 = £437,500.

4. Check if there are any restrictions depending on when you incurred the expense.

For expenditure you’ve incurred from 1 January to 31 March 2014, the maximum amount of AIA you can claim is restricted to £250,000 (the maximum AIA claimable for the period before the increase to £500,000).

If you only incurred expenditure in this period, the maximum amount of AIA you can claim is £250,000.

Example 4

The maximum amount of AIA reduced from £100,000 to £25,000:

  • from 1 April 2012 for limited companies
  • from 6 April 2012 for Income Tax

It was then increased from £25,000 to £250,000 from 1 January 2013 (for both limited companies and Income Tax).

Your accounting period is from 1 April 2012 to 31 March 2013.

1. Divide your accounting period into parts.

The first part of the period is from the first day of your accounting period to the day before the first change in the maximum amount of AIA.

That’s 1 April 2012 to 5 April 2012.

The next part is from the date of the first change in the maximum amount of AIA to the day before the date of the next change in the maximum amount of AIA.

That’s 5 April 2012 to 31 December 2012.

The last part is from the date of the last change in AIA to the last day of your accounting period.

That’s 1 January 2013 to 31 March 2013.

2. Work out the amount of AIA you can claim for each part.

From 1 April 2012 to 6 April 2012, it’s 5 days at £100,000 per year.

That’s 5/365 x £100,000 = £1,370.

From 6 April 2012 to 31 December 2012, it’s 270 days at £25,000 per year.

That’s 270/365 x £25,000 = £18,494.

From 1 January 2013 to 31 March 2013, it’s 90 days at £250,000 per year.

That’s 90/365 x £250,000 = £61,644.

3. Add the amounts together.

Your maximum amount of AIA for this period is the total of the 3 parts.

Thats £1,370 + £18,494 + £ 61,644 = £81,508.

4. Check if there are any restrictions depending on when you incurred the expense.

The period is divided into 2 parts:

  • from 1 April 2012 to 5 April 2012 when the maximum amount of AIA was £100,000
  • from 6 April 2012 to 31 March 2013 when the maximum amount of AIA would be £25,000 if the increase to £250,000 hadn’t happened on 1 January 2013

The maximum AIA for the first part is 5 days at £100,000 per year.

That’s (5/365 x £100,000) = £1,370.

The maximum amount for the second part is 360 days at £25,000 per year.

That’s (360/365 x £25,000) = £24,658.

For expenditure you incurred in the part of the period before 6 April 2012, the maximum amount of AIA is £1,370 + £24,658 = £26,028.

For expenditure you incurred in the part of the period between 6 April 2012 and before 1 January 2013, the maximum allowance is the difference between 2 amounts:

  • the maximum amount for 6 April 2012 to 31 March 2013 if the AIA had not been increased

That’s 360 days at £25,000 per year: 360/365x £25,000= £24,658.

  • the amount that your actual expenditure before 6 April 2012, exceeds the maximum entitlement for that part

That’s 5/365 x £100,000 = £1,370.

For expenditure you incurred in the part of the chargeable period falling on or after 1 January 2013, the maximum allowance is the sum of each maximum allowance that would be found if the parts of the period from 6 April 2012 to 31 December 2012 and 1 January 2013 to 31 March 2013 were each treated as separate chargeable periods:

  • 6 April 2012 to 31 December 2012 is 270 days at £25,000 per year

That’s 270/365 x £25,000 = £18,494.

  • 1 January 2013 to 31 March 2013 is 90 days at £25,000 per year

That’s 90/365 x £250,000 =£61,644.

Add totals: £18,494 + £ 61,644 = £80,138.

If you haven’t incurred any qualifying expenditure before 6 April 2012, that part of the business’s potential maximum entitlement could not be effectively regained in relation to expenditure incurred on or after 1 January 2013.

Example 5

You have a business with an 18 month accounting period. This period includes both the increase in the maximum amount of AIA from £25,000 to £250,000 and the increase from £250,000 to £500,000.

Your Income Tax accounts are for the period 1 December 2012 to 31 May 2014.

The maximum amount of AIA increased from:

  • £25,000 to £250,000 on 1 January 2013
  • £250,000 to £500,000 on 6 April 2014 for Income Tax

1. Divide the period into parts.

The first period is from the first day of your accounting period to the day before the first change in the maximum amount of AIA.

That’s 1 December 2012 to 31 December 2012.

The next period is from the first day the maximum amount of AIA changed to the day before the next change in the maximum amount of AIA.

That’s 1 January 2013 to 5 April 2014.

The last part is from the day of the last change in the maximum amount of AIA to the last day of your accounting period.

That’s 6 April 2014 to 31 May 2014.

2. Work out the maximum amount of AIA for each part.

From 1 December 2012 to 31 December 2012, the maximum amount of AIA is 1 month at £25,000 per year.

That’s 1/12 x £25,000 = £2,083.

From 1 January 2013 to 5 April 2014, the maximum amount of AIA is 15 months at £250,000 per year.

That’s 15/12 x £250,000 = £312,500.

From 6 April 2014 to 31 May 2014, the maximum amount of AIA is 2 Months at £500,000 per year.

That’s 2/12 x £500,000 = £83,333.

3. Add the amounts together.

The maximum amount of AIA for the 18 month period is £2,083 + £312,500 + £83,333 = £397,917.

4. Check if there are any restrictions depending on when you incurred the expense.

For expenditure you incurred in the part of the whole period falling before 1 January 2013, that’s the period from 1 December 2012 to 31 December 2012, the maximum AIA allowance is the amount that would have been the maximum allowance for the whole of the period, if neither the temporary increases in the AIA to £250,000 or £500,000 had been made.

For expenditure you actually incurred in the period from 1 December 2012 to 31 December 2012 the maximum allowance would be:

  • 1 month at £25,000 per year = 1/12 x £25,000 = £2,083
  • 15 months at £25,000 per year = 15/12 x £25,000 = £31,250
  • 2 months at £25,000 per year = 2/12 x £25,000 = £4,167

    This will give you a total of £37,500.

For expenditure you actually incurred in the part of the 18 month period before 6 April 2014, that’s 1 December 2012 to 5 April 2014, the maximum allowance for the whole of the 18 month period is what would have been the maximum AIA entitlement for the whole of the 18 month period if there had been no increase in the AIA limit from £250,000 to £500,000.

For expenditure you incurred in the period 1 December 2012 to 5 April 2014 a maximum allowance would be:

  • 1 month at £25,000 per year = 1/12 x £25,000 = £2,083
  • 15 months at £250,000 per year = 15/12 x £250,000 = £312,500
  • 2 months at £25,000 per year = 2/12 x £250,000 = £41,667

This will give you a total of £356,250.

For expenditure you actually incurred in the part of the 18 month period from 6 April 2014 to 31 May 2014 the maximum amount of AIA is the total for the 18 month period = £397,917.

Example 6

How to work out AIA when your accounting period straddles 1 January 2016, the date the maximum amount will be reduced from £500,000 to £200,000.

Your business draws up its accounts for a 12 month period from 1 April 2015 to 31 March 2016

1. Divide your 12 month period into parts.

The first part is from the first day of your accounts to the day before the change in the maximum amount of the AIA.

This will be from 1 April 2015 to 31 December 2015.

The next part will be from the date of the change of the maximum amount of AIA to the last day of your accounts.

This will be from 1 January 2013 to 31 March 2016.

2. Work out the maximum amount of AIA for each part.

From 1 April 2015 to 31 December 2015, the maximum amount of AIA is 9 months at £500,00 per year.

That’s 9/12 x £500,000 = £375,000.

From 1 January 2016 to 31 March 2016, the maximum amount of AIA is 3 months at £200,000 per year = 3/12 x £200,000 = £50,000.

3. Add the amounts together.

The total maximum amount for the 12 month period is £375,000 + £50,000 = £425,000.

4. Check if there are any restrictions depending on when you incurred the expense.

If you incurred expenditure in the part of the chargeable period falling on or after 1 January 2016, the maximum allowance is £50,000 in this example.

This rule doesn’t mean the business’ maximum AIA entitlement for the 12 month period as a whole, which is £425,000, is reduced. It means the amount of expenditure that you actually incur on or after 1 January 2016 that may be covered by AIA, is capped at £50,000.

For expenditure you actually incurred in the part of the period falling before 1 January 2016, the maximum allowance is £425,000.

If you don’t incur any expenditure before 1 January 2016 and the only expenditure you actually incur in the 12 month is after 1 January 2016, the maximum amount of AIA you can claim for the 12 month period is £50,000.

Published 4 December 2014