Annual investment allowance (AIA)

Produced by Tolley
  • (Updated for Budget 2021)
Annual investment allowance (AIA)

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Annual investment allowance (AIA)
  • Amount of the allowance
  • AIA and private use
  • AIA and short accounting periods
  • Timing of expenditure and fluctuating rates of AIA
  • AIA and pre-trading expenditure
  • Exceeding the rates of AIA
  • AIA and companies under common control
  • Corporate partners
  • AIA and multiple businesses
  • More...

Amount of the allowance

An AIA is available for expenditure incurred on plant or machinery on or after 1 April 2008. The maximum amount of AIA available has varied significantly over recent years and the latest amounts are as follows:

Maximum annual allowancePeriod qualifying expenditure incurred
£200,000From 1 January 2022
£1,000,0001 January 2019 until 31 December 2021
£200,0001 January 2016 until 31 December 2018
£500,0006 April 2014 (1 April 2014 for companies) until 31 December 2015

CAA 2001, ss 38A, 51A(5)

The temporary increase in the rate of AIA to £1,000,000 from 1 January 2019 is set out in FA 2019, s 32 and this increase will end on 31 December 2021. The transitional rules, which are to be applied when calculating the AIA for accounting periods which straddle the dates above, are discussed in further detail below.

The AIA cannot be claimed on expenditure incurred, or deemed to be incurred, on:

  1. cars

  2. assets of a ring-fence trade (ie a trade relating to oil extraction activities etc) where a supplementary charge applies under CTA 2010, s 330

  3. gifts

  4. assets previously used by the owner for a non-qualifying activity

  5. assets previously used for leasing

  6. a sale and leaseback where the leaseback is a long funding lease (see the Capital allowances on cars guidance note)

CAA 2001, s 38B

AIA and private use

Where an asset is acquired partly for use in the a business and partly for private use, the amount of AIA is reduced on a just and reasonable basis, see Example 1.

AIA and short accounting periods

If the company’s chargeable accounting period is less than 12 months long, the AIA is proportionately reduced or increased. Therefore, for a company drawing up a set of accounts for the six-month period to 31 December 2019, the AIA will be £1,000,000 x 6/12 = £500,000. It is possible to time apportion on a strict daily basis or a monthly basis. HMRC guidance at CA23085 confirms this practice.

Timing of expenditure and

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