Background Note
32.Since 1 April 2008 (CT) and 6 April 2008 (IT) most businesses, regardless of size, have been able to claim the AIA on their expenditure on plant or machinery, up to a specified annual amount each year (subject to certain conditions mentioned below). With effect from 1 April 2012 (CT) or 6 April 2012 (IT) the maximum amount of the AIA was reduced from £100,000 to £25,000 for qualifying expenditure incurred on or after those dates.
33.Following an announcement in the 2012 Autumn Statement, Finance Act 2013 temporarily increased the maximum amount of the AIA from £25,000 to £250,000 for the period 1 January 2013 to 31 December 2014.
34.At the Budget 2014 the Chancellor announced his intention to extend the period of the temporary increase to 31 December 2015 and further increase the maximum amount of the AIA to £500,000 from 1 (or 6) April 2014.
35.These temporary increases are designed to stimulate growth in the economy by providing an additional, time-limited incentive for businesses (particularly small and medium-sized businesses) to increase, or bring forward, their capital expenditure on plant or machinery.
36.Businesses are able to claim the AIA in respect of their expenditure on both general and “special rate” plant and machinery. The AIA is effectively a 100 per cent upfront allowance that applies to most qualifying expenditure (with expenditure on cars being the most important exception) up to an annual limit or cap. Where businesses spend more than the annual limit, any additional qualifying expenditure is dealt with in the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing-down allowances (WDAs) at the 18 per cent or 8 per cent rates respectively.
37.Because the AIA is a generous relief there are certain restrictions. It is available to:
Any individual carrying on a qualifying activity (this includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office).
Any partnership consisting only of individuals, and
any company (subject to certain restriction).
38.In the case of companies in a group there is one AIA available to all the companies in the group.
39.In the case of singleton companies, each receives its own AIA unless, for example, it and another company are under common control. In cases where companies are under common control (for example, two companies owned by the same individual) each company will still be entitled to a separate AIA, unless they are engaged in “similar activities” or share the same premises in a financial year.
40.The rules provide that a company is related to another company in a financial year and, separately, that an unincorporated qualifying activity is related to another qualifying activity in a tax year, if either or both of:
The shared premises condition, and/or
the similar activities condition,
are met in relation to the companies or the qualifying activities with chargeable periods ending in that financial year, or that tax year, as the case may be.
41.The rules provide businesses with almost complete freedom to allocate the AIA between different types of expenditure. For example, they may allocate it first against any expenditure on “integral features”, qualifying for the lower 8 per cent “special rate” of WDA.
