Annual Investment Allowance (AIA)

This 100% first year allowance is available to business investing in qualifying plant and machinery or 'special rate' plant and machinery. This has changed in value several times in recent years, with the Chancellor increasing the allowances to £500,000 in the 2014 budget.

The limit will be £500,000 for a temporary period from 1 April 2014 (for corporation tax) and 6 April 2014 (for income tax) to 31 December 2015 and is available to most businesses, regardless of size.

The effect of the AIA is to allow the full amount of the qualifying expenditure (up to the £500,000 limit) to be written off against profits in the first year, rather than being written off at various rates. Any qualifying expenditure incurred in excess of the upper limit will attract relief under the normal rules (ie currently at either 8% or 18% per annum).

The maximum AIA applicable will be time apportioned during the introductory period, so planning for expenditure during a chargeable period that spans the change of rate, will need to be considered carefully.

The AIA limit (for corporation tax purposes) in recent years has been as follows:

• 1 April 2012 to 31 December 2012 = £25,000
• 1 January 2013 to 31 March 2014 = £250,000
• 1 April 2014 to 31 December 2015 = £500,000