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Increase in AIA to £250k

I have a client whose next year end is 29/02/2013. They were recently looking at buying a new bit of machinery for circa £150k. I was thinking of advising them of waiting until 01/01/2013 so as to benefit from the change. However am I correct in thinking that the increase will be pro rata for the CT period such that the £250k will become £41,1667 (£250 * 2/12) and therefore not a great deal of difference from the current 25K AIA?


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A year ended 29/2/13 will encompass three different AIA rates.

Prior to 1/4/12 it was £100k, 1/4/12 - 31/12/12 is £25k, 1/1/13 onwards is £250k.

For a year ended 29/2/13, it will depend on when the P&M is bought as to what AIA you could claim but you would be entitled to the following:   

£100k x 1/12 (£8333) + £25k x 9/12 (£18750) + £250k x 2/12 (£41667) = a total of £68,750. Of this, a maximum of £27,083 could be incurred before 31/12/12 but of this figure, it could either be all incurred before 1/4/12 or only £18,750 after. If the only expenditure in the accounting period is after 1/1/13, then you could have the whole amount as AIA - £68,750 

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I agree

However, next year is not a leap year.

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Have you seen the detailed provisions for the change? Your figures are probably correct - assuming that they treat post 31/12/12 limits as they did when limit increased from £50k to £100k. But it is just possible that they apply the same logic as they did with the subsequent reduction - treating each part of the accounting period as a separate period, thus limiting allowance in the period to 28/2/13 to £41,667.

As I say, I suspect (hope) that your analysis is correct - just wondering if you've seen anything to confirm this?

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Following a reduction in AIA, splitting the accounting period into Financial years is necessary to prevent claims exceeding the maximum AIA in a particular financial year. A similar split is not necessary when the AIA increases as over the accounting period, the AIA claimed will never exceed the maximum allowance in any of the financial years which the accounting period falls within.  

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Thanks, Brightster

I get all that - which is why I said that your analysis is probably correct. However, although it may not be necessary to carry out the split as suggested, it is still quite possible. It wouldn't be the first time that the draftsman had cocked things up. Which is why I asked if your analysis was based on any detail that you had seen. Until we've seen the legislation/guidance for the transitional period it would be dangerous to make any assumptions. I certainly will not be advising clients on appropriate levels of expenditure until I know for certain how the change is to be effected.

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And a slight correction required?

You say that only £18,750 of expenditure incurred between 1 April and 31 December 2012 would be eligible. That doesn't sound right. Before the increase was announced, I could have safely advised my client with a 28 Feb 2013 year end that he could spend £8,333 in March 2012 and £22,917 in April 2012 and get full AIA. If the client spent nothing more in the accounting period then he would, despite the post 1 Jan 13 increase and according to your analysis, be worse off. Something wrong somewhere if that's the case.

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Brightster, are you right on pre 01/01/13 element?

I've spent ages trawling through the FB2013 explanatory notes and am completely confused! Regarding pre 01/01/13 expenditure, my understanding is that it is restricted as if the £250k increase had not occurred, so in your example 01/03/12-28/02/13 would be £100k x 1/12 (£8333) + £25k x 11/12 (£22917) = £31250. I could be wrong because I am struggling to follow the rules.

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The rules give the result that I expected them to. But the legislation and associated explanatory notes make an absolute mockery of 'tax simplification'. The Chancellor may be keen to demonstrate that he is trying to help small businesses, but would waiting 3 months, when the calculations would have been so much simpler, really have made much of a difference? I can't imagine the discussions that are being had within the ofifces of the tax software developers at the moment.

As for the rules regarding the switch back to £25k, I'm too afraid to look at the moment (though at least then we should be dealing with only 2 rates, so perhaps the rules aren't as horrible as I fear).

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No George - just change it in April instead

BKD wrote:

I can't imagine the discussions that are being had within the ofifces of the tax software developers at the moment.

As for the rules regarding the switch back to £25k, I'm too afraid to look at the moment (though at least then we should be dealing with only 2 rates, so perhaps the rules aren't as horrible as I fear).

Mainly expletives regarding software development - especially around the 'middle bit' of a period with three rates where the maximum claim is variable.

The change from £250k to £25k is treated in the same way that the £100k to £25k was - all assuming that they don't whack it up to £500k to try to win votes!

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post 1/4/12

for the first time the amount claimable was restricted to only allow the proportion of the £25k against any purchases made from 1/4/12 to year end. Prior to that you would work out the time apportioned parts and allow that as maximum whenever it was spent in the year.

If this is applied to the latest increase too I think I would advise waiting till 1 March 

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Agree with Kevin

Hi All

I agree with KevinRinger above, and calculate that the maximum for the first period will be £31,250. (I realise that many of the comments here were written before the draft legislation appeared - and we could not possibly have predicted what actually appeared).

It is one of the most absurdly difficult pieces of capital allowances legislation we have seen in ages, just to get a transitional figure. Thought I was just getting old, so I am glad that others share my perception! Sometimes "fairness" should just give way to commonsense: if you spend the money after 1 January 2013 you can claim X, and be done with it.

I have had a go at working it all out and explaining it, and the results of my deliberations are available on this AWeb site here

For what it is worth, the change back in January 2015 does not look too horrendous.


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