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The Annual Investment Allowance (AIA) is set at a temporary level of £500,000 a year from 1 April 2014 (corporation tax) and 6 April 2014 (income tax) until 31 December 2015. It reverts to the new permanent level of £200,000 from 1 January 2016.

Where the accounting period spans 1 January 2016, the maximum allowance for the period is calculated in two parts by reference to the periods falling either side of that date.
In a transitional period the timing of the capital expenditure is important to ensure that it is fully covered by the annual allowance and, depending on the level of any proposed investment, it may be beneficial to bring forward the expenditure to before 1 January 2016.
 
Example:
Lucy has a personal company which prepares accounts to 31 March each year. In the year to 31 March 2016, the company incurs capital expenditure of £120,000 in June 2015 and plans to spend a further £100,000 in February 2016.

As the year spans 1 January 2016 on which the AIA limit reduces from £500,000 to £200,000, the year is split into two parts and the maximum AIA entitlement is calculated as follows:

1 April 2015 to 31 December 2015: 9/12 x £500,000 =£375,000.
1 January 2016 to 31 March 2016: 3/12 x £200,000 = £50,000.

Although the maximum AIA for the year to 31 March 2016 is £425,000 (£375,000 + £50,000), a claim cannot be made in excess of the AIA for the part-period from 1 January 2016 to 31 March 2016.

Lucy will be able to claim the full AIA for the expenditure of £120,000 in June 2015. However, although her total expenditure for the year of £220,000 is less than her maximum AIA entitlement of £425,000, if she spends the further £100,000 in February 2016 she will only be able to claim the AIA in respect of £50,000 of that expenditure and would need to obtain relief for the remaining £50,000 by means of the writing down allowance. However, if she accelerates the expenditure to December 2015, she will be able to claim the AIA for the full amount, accelerating the relief.SaveSave