AIA – a comprehensive first year allowance

An overview and worked examples of Annual Investment Allowance (AIA).


AIA is effectively a 100% first year allowance for business expenditure on qualifying plant or machinery.


The general rule is that qualifying expenditure is:


  • expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity that the person incurring the expenditure carries on, and  as a result of incurring the expenditure the person incurring the expenditure owns the plant or machinery.


Plant or machinery covers many assets that a qualifying person may buy for the purposes of his business. Assets not covered by the AIA are land, buildings and cars. Typical examples of plant or machinery include:


  • computers
  • all kinds of office furniture and equipment
  • vans, lorries, trucks, cranes and diggers
  • ‘integral features’ of a building or structure
  • other building fixtures, such as shop fittings, kitchen and bathroom fittings
  • all kinds of business machines
  • tractors, combine harvesters and other agricultural machinery
  • gaming machines, amusement park rides
  • computer aided machinery, including robotic machines
  • wind turbines and fibre optic cabling.


‘Qualifying person’ means an individual, a company and a partnership of which all the members are individuals, carrying on a qualifying activity. A qualifying activity includes trades, professions, vocations, ordinary property businesses and employments or offices. Trusts and partnership of which a company is a member do not fall within the definition of a qualifying person.


Where businesses spend more than the annual limit, any additional expenditure is dealt with in the normal capital allowances regime, entering either the main rate or special rate pool, where it will attract writing-down allowances at the 18% or 8% rate respectively. AIA is not available:


  • on assets not used immediately in the trade
  • in the chargeable period in which the qualifying activity is permanently discontinued
  • on a transaction with a connected person.


Budget 2018 Annual Investment Allowance increase


The chancellor announced in the October Budget that from 1 January 2019 the Annual Investment Allowance (AIA) will be increased from £200,000 to £1m for two years.


So maximum AIA is as follows:

  • £200,000 on expenditure from 1 January 2016 to 31 December 2018
  • £1,000,000 on expenditure incurred from 1 January 2019 to 31 December 2020
  • £200,000 on expenditure incurred after 1 January 2021.


Maximum allowance is proportionately increased or reduced where the chargeable period is more than or less than a year. Transitional rules apply for chargeable periods which straddle the affected dates.


The transitional rule operates as follows:


Chargeable periods spanning 1 January 2019: The chargeable period is divided into separate ‘notional’ chargeable periods. The first period begins on the first day of the actual chargeable period and ends on 31 December 2018. The second period begins on 1 January 2019 and ends on the last day of the actual period


Chargeable periods spanning 1 January 2021: The chargeable period is again divided into separate ‘notional’ chargeable periods. The first period begins on the first day of the actual period and ends on 31 December 2020. The second period begins on 1 January 2021 and ends on the last day of the actual period.


  • The maximum amount of each of the notional periods is then calculated and the sum of the amounts is taken as the maximum amount of the actual chargeable period.
  • In addition, only a maximum of £200,000 of that annual cap can be claimed in relation to expenditure before 1 January 2019.
  • The maximum amount that can be claimed for the period 1 January 2021 to the end of the chargeable period will be the pro-rated amount of the £200,000 cap.


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