CA23083 - PMA: Qualifying expenditure: Annual Investment Allowance (AIA): Pre-commencement expenditure

CAA01/S38A

The AIA was first introduced on 1 April 2008 for CT purposes and 6 April 2008 for IT purposes. Expenditure must be incurred on or after these dates to qualify for AIA.

Pre-commencement expenditure is expenditure incurred before the first day on which the business is carried on. Normally, such expenditure is treated for capital allowances purposes as if it had been incurred on the first day on which the business is carried on (CAA01/S12) (CA23020).

There is a rule in CAA01/S38A(4) which provides that in determining whether expenditure is AIA qualifying expenditure, the effect of CAA01/S12 on the time at which it is to be treated as having been incurred is disregarded. This rule prevented expenditure from qualifying for the AIA if the expenditure was actually incurred before 1/6 April 2008. However, the rule has no practical significance for expenditure that is actually incurred on or after 1/6 April 2008. It does not prevent pre-trading expenditure that is actually incurred on or after 1/6 April 2008 from qualifying for the AIA.

Example 1

John incurred pre-trading expenditure of £20,000 on a van in January 2008 and began trading on 6 April 2008. In terms of CAA01/S12, the expenditure is deemed to have been incurred on 6 April 2008, but for the purpose of determining whether the expenditure is AIA qualifying expenditure, the effect of CAA01/S12 is disregarded. As the expenditure was actually incurred before 1/6 April 2008, it did not qualify for AIA.

Example 2

Jason incurred pre-trading expenditure of £40,000 on a van in January 2024 and began trading on 6 April 2024. In terms of CAA01/S12, the expenditure is deemed to have been incurred on 6 April 2024, but for the purpose of determining whether the expenditure is AIA qualifying expenditure, the effect of CAA01/S12 is disregarded. However, as the expenditure was actually incurred at a time when the AIA was in force, the rule in CAA01/S38A(4) does not prevent Jason from claiming AIA when he begins to trade.