The AIA limit is increased from £200,000 to £1 million for two years from 1 January 2019. This increase has been extended until the tax period falling before 1 April 2023. 

Transitional rules will apply where there is a chargeable period which spans the 1 January 2019, or 1 April 2023:

• Chargeable periods spanning 1 January 2019:
  • The maximum AIA across the whole period will be pro-rated for the period subject to the £200,000 cap and the period subject to the £1,000,000 cap.
  • In addition, only a maximum of £200,000 of that annual cap can be claimed in relation to expenditure before 1 January 2019.
  • For example, for a 30 June 2019 year end, up to £200,000 can be claimed in relation to expenditure in the period to 31 January 2019, and a total of up to £600,000 (6/12 x £200,000 + 6/12 x £1 million) can be claimed for the year to 30 June 2019.

TaxCalc will be able to assist with this and provided the correct data goes into the software, will ensure the correct amount of AIA is calculated.

Example

Where a business has a chargeable period from 1 July 2018 to 30 June 2019 the maximum AIA for this period would be £600,000 calculated as follows:

a) the proportion of the period from 1 July 2018 to 31 December 2018, that is, 6/12 x £200,000 = £100,000 and

b) the proportion of the period from 1 January 2019 to 30 June 2019, that is 6/12 x £1,000,000 = £500,000

£100,000 + £500,000 = £600,000.

However, in relation to (a) (the part period falling before 1 January 2019, no more than a maximum of £200,000 of the company’s actual expenditure in that particular part period would be covered by its transitional AIA entitlement (the maximum claimable before the increase to £500,000).

For more information please see HMRC Annual Investment Allowance extension