HMRC internal manual

Capital Allowances Manual

CA23088 - PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: restrictions on AIA applying to companies

CAA01/S38A and S38B, S51A to S51N

Restrictions relating to companies

There is a restriction to a single AIA in the following cases:-

Single company

A single company is entitled to only one AIA - even if it carries on more than one qualifying activity. For example, a company that carries on a trade as well as a property business may have two qualifying activities, but only one AIA, although that AIA may be shared between the two activities in any way the company sees fit.

Group of companies

Companies that fall within the company law definition of a group are legally and economically interdependent and are entitled to a single AIA per group. Once again, there are no rules about how the AIA may be allocated against any qualifying expenditure incurred by any of the companies in the group - this may be done in any way the companies see fit.

Groups of companies under common control

Where two or more groups of companies are ‘related’ and controlled by the same person the companies collectively are entitled to a single AIA, which may be allocated between them in any way they see fit.

Other related companies under common control are entitled to a single AIA to be allocated between them in any way they see fit.

Meaning of a group of companies

A company is a parent undertaking of another company in a financial year if it is a parent undertaking of that other company at the end of that other company’s chargeable period ending in that financial year. Parent undertaking is defined in section 1162 of the Companies Act 2006.

Example

S Ltd. draws up its accounts to 30 April each year. In terms of S.1162 of the Companies Act 2006, P Ltd is S Ltd’s parent undertaking on 30 April 2009. This means that P Ltd is S Ltd’s parent undertaking in the financial year ended 31 March 2010.

Meaning of ‘control’

  • A company is controlled by a person in a financial year if it is controlled by that person at the end of its chargeable period ending in that financial year.
  • Similarly, a group of companies is controlled by a person if the parent undertaking is controlled by that person at the end of its chargeable period, ending in that financial year.

CAA01/S574(2) defines “control” in relation to a company which is a body corporate. In relation to a company (“C”) which is not a body corporate, control means the power of a person (“P”) to secure (through the holding of shares, voting or other powers) that the affairs of C are conducted in accordance with P’s wishes.

A company is related to another company in a financial year if one or both of the shared premises condition CA23090, and the similar activities condition CA23090 are met in that financial year.

A group of companies is related to another group of companies in a financial year if in that financial year a company which is a member of one group is related to a company which is a member of the other group. If in a financial year a group (the first group) is related to another group (the second group), the first group is also related to any other group of companies to which that second group is related in that financial year.