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HMRC internal manual

Capital Allowances Manual

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

CAA01/S38A and S38B, S51A to S51N

The maximum AIA is £25,000 for a chargeable period of a year.

Time apportionments

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 ran for only 6 months, its maximum AIA entitlement for that period would be 6/12 X £25,000 = £12,500. Or
  • if a sole trader had a long chargeable period of 18 months, his maximum AIA for that period would be 1.5 X £25,000 = £37,500.


Similarly, in the transitional period where businesses’ chargeable periods may have straddled either the relevant AIA commencement date (that is, 1 April 2008 for companies, or 6 April 2008 for unincorporated businesses CA23083), or one of the dates the annual amount was changed (1 /6 April 2010 or 1/6 April 2012) the business’s entitlement to an AIA should be time-apportioned from the relevant date.


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 (FA08/S80(10) & S83(2)) specifically requires that apportionments must be made on the basis of days in all cases.

Example 1

Harry owns a small company with a calendar year chargeable period, running from 1 January to 31 December 2008. He is entitled to a maximum AIA of £37,671 for that transitional period (and will also be able to claim a 50% SME FYA for any qualifying expenditure incurred between 1 January and 31 March 2008). His AIA calculation is as follows:

1 April to 31 December 2008 = 275 days. 275/365 x £50,000 = £37,671.

Example 2

Harry’s company continues and spends £150,000 on machinery in the year ended 31 December 2010 of which £85,000 was incurred before 1 April 2010 and £65,000 was incurred afterwards.

The maximum AIA for the period 1 January 2010 to 31 December 2010 is £87,500

[1 January to 31 March 2010 (3/12 x £50,000) + 1 April to 31 December 2010 (9/12 x £100,000)]

Only a maximum of £50,000 of expenditure incurred in the period before 1 April 2010 is eligible for AIA

However expenditure incurred before 1 April 2010 will; where appropriate qualify for the temporary first- year allowance of 40%

The maximum capital allowances claim that can be made is by claiming all of the post 1April expenditure (£65,000) as AIA

AIA £65,000 + £22,500 (part of the total spend pre 1 April of £85,000) = £87,500

Temporary FYA (£85,000-£22,500) X 40% = £25,000

Total claim £87,500 + £25,000 = £112,500

Example 3

Ryan draws up his accounts for the period 1 January 2012 to 31 December 2012. His maximum AIA entitlement is based on:

the proportion of a year from 1 January 2012 to 31 March 2012, that is, 3/12 x £100,000 = £25,000; and

the proportion of a year from 1 April 2012 to 31 December 2012, that is 270/366 x £25,000 = 18750.

His maximum AIA for this particular transitional chargeable period would therefore be the total of (a) + (b) = 25,000 + £18,750 = £43,750.

However, should Ryan only incur expenditure after 6 April his maximum AIA is capped at £18,750.

AIA claims

The AIA may only be claimed in the chargeable period in which the qualifying expenditure is actually incurred (CAA01/S51A(2)), so any unused balance of an AIA cannot be carried forward for use in a later chargeable period. (But if a business that is a loss-maker incurs qualifying expenditure of £25,000 or more in a chargeable period it may, of course, claim the AIA in full for that year, to augment the loss it carries forward.)

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)).

Any qualifying expenditure not covered by the business’s AIA will attract WDA at the appropriate rate (that is, either 18% p.a. for general plant or machinery in the main pool, or 8% p.a. for plant or machinery in the special rate pool) from the chargeable period in which the expenditure is incurred.


Fred spends £130,000 on farming equipment in 2010/11. He is entitled to an AIA of £100,000 plus WDA on the balance of £30,000 at 20% = £6,000, that is, total allowances of £106,000 for his 2010/11 chargeable period. The unrelieved balance of £24,000 is carried forward in the pool to be written-down further at 20% in 2011/12 and at 18% in subsequent years.

Restrictions on AIA entitlement

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