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HMRC internal manual

Capital Allowances Manual

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HM Revenue & Customs
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PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: date of expenditure

CAA01/S38A and S38B, S51A to S51N

A person must incur the AIA qualifying expenditure on or after the relevant commencement date, that is:

  • 1 April 2008 (for CT purposes) or
  • 6 April 2008 (for IT purposes).

Pre-commencement expenditure

Pre-commencement expenditure is expenditure incurred before the first day on which the business is carried on. Normally, such expenditure is treated for capital allowances purposes as if it had been incurred on the first day on which the business is carried on (CAA01/S12).

However, in determining whether expenditure is AIA qualifying expenditure, any effect of section 12 on the time at which it is to be treated as having been incurred is disregarded (CAA/S38A(4)). A similar rule applied when deciding whether expenditure qualified for FYA (CAA/S50). Here are two examples to show what this means:

Example 1

Tom incurs pre-trading expenditure of £60,000 on a van in January 2008 and begins trading on 6 April 2008. His business meets the definition of a small business CA23170. In terms of s.12, the expenditure is deemed to have been incurred on 6 April 2008, that is, on the first day of Tom’s 2008-09 chargeable period. However, in order to determine whether the expenditure is entitled to a £50,000 AIA, or 50% FYA (for a small enterprise CA23160), the deemed timing effect of s.12 is ignored. Because the expenditure was actually incurred in January 2008 (that is, before the AIA replaced the SME FYA), Tom is entitled to a 50% FYA of £30,000. The balance of £30,000 is added to Tom’s main PMA in the following year, 2009-10, when it will qualify for a 20% WDA.

Example 2

Dick incurs pre-trading expenditure of £60,000 on office furniture and computers in January 2009 and begins trading on 6 April 2009. In terms of s.12 the expenditure is deemed to have been incurred on 6 April 2009, that is, on the first day of Dick’s first 2009-10 chargeable period. In order to determine whether the expenditure is AIA expenditure the timing effect of s.12 is ignored. However, the expenditure was actually incurred after 6 April 2008 and otherwise qualifies as AIA expenditure, so Dick is entitled to an AIA of £50,000. The balance of £10,000 is entitled to a 20% WDA of £2,000 in Dick’s main PMA pool for the same year, so that Dick is entitled to total allowances of £52,000 for his first chargeable period.

Example 3

Harry Ltd incurs pre-trading expenditure of £60,000 on a printing press after 1 April in the year ended 31 December 2008, commences trading on 1 January 2009 and incurs further expenditure of £50,000 on photographic equipment on 31 March 2009. In terms of s.12 the expenditure in the year to 31 December 2008 is deemed to have been incurred on 1 January 2009. Accordingly, Harry Ltd is entitled to an AIA of £50,000 and a 20% WDA of £12,000. Note that Harry Ltd does not obtain two AIA s of £50,000, even though the company would have received an AIA in the year ended December 2008 (of £37,500 for the period from 1 April to the year end) had it been trading at that time.