CA23084 - PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: what is AIA qualifying expenditure?
CAA01/S38A and S38B, S51A to S51N
AIA qualifying expenditure
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
- the person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure CA23010.
AIA qualifying expenditure is qualifying expenditure incurred by a qualifying person CA23082 that is not excluded by any of the five ‘general exclusions’ listed below.
So the AIA is available on virtually all PMA qualifying expenditure (subject only to the general exclusions below). It may be claimed on long-life assets, integral features and other special rate expenditure, as well as on general plant and machinery, and the taxpayer is free to allocate his AIA against any type of P&M expenditure in any way he chooses. It is to be expected that taxpayers will commonly allocate the AIA against the expenditure that would otherwise receive the lowest rate of capital allowance.
Some examples of AIA qualifying expenditure
The scope of PMAs is covered in more detail in other parts of this manual. For illustrative purposes, examples of the types of assets that might qualify for the AIA are:
- computers and all kinds of office furniture and equipment
- vans, lorries, trucks, cranes and diggers
- ‘integral features’ of a building or structure, see CA22320
- other building fixtures, such as shop fittings, kitchen and bathroom fittings
- all kinds of business machines, such as printing presses, lathes and tooling machines
- tractors, combine harvesters and other agricultural machinery
- gaming machines, amusement park rides
- computerised /computer aided machinery, including robotic machines
- wind turbines and fibre optic cabling.
Expenditure qualifying for more than one allowance
Expenditure can qualify only once for tax relief (CAA01/S7 & S52A). If expenditure qualifies for more than one allowance the taxpayer may choose which allowance to claim and may allocate allowances in the way that is most beneficial to them.
General exclusions
The AIA is not available on expenditure incurred:
- in the chargeable period in which the qualifying activity is permanently discontinued
- on the provision of a car CA23510
- wholly for the purposes of a North Sea ring fence trade CA23157
- where the asset is provided in connection with a change in the nature or conduct of a business carried on by someone else and the main benefit, or one of the main benefits, that could reasonably be expected from the change is obtaining an AIA.*
- where the asset has been received as a gift CA23040 or has been brought into use for the purposes of a qualifying activity having been acquired for other purposes, including leasing under a long funding lease CA23030.
*The fourth bullet point refers to an anti-avoidance provision intended to stop a business that is not entitled to, or has exhausted its entitlement to, an AIA from getting round the AIA restrictions by effectively transferring the asset to another business that has not used up its entitlement.
Example
Smithson Plc is a business that has already used up its AIA for its current chargeable period. It wants to buy a lathe for £25,000. It makes a loan of £25,000 to Dan, a higher rate taxpayer, who buys the lathe for his new qualifying activity of operating the lathe, thus obtaining the AIA, with fixed supply and sale contracts with Smithson Plc. The lathe is installed in Smithson Plc’s factory and operated by its workforce on a subcontract basis. The tax saving is shared by Smithson Plc and Dan through the contract price.
The anti-avoidance legislation means that Dan is not entitled to the AIA and so the scheme does not work.