TEMPORARY INCREASE IN THE ANNUAL INVESTMENT ALLOWANCE

​Who is likely to be affected?
Businesses investing more than £200,000 in plant and machinery from January 2019.
 
General description of the measure
The measure provides significantly faster tax relief for plant and machinery investments between £200,000 and £1 million, helping businesses to invest and grow.
 
Background to the measure
The maximum amount of the Annual Investment Allowance (AIA) was temporarily increased to £500,000 at Budget 2014. Summer Budget 2015 set the rate of AIA permanently to £200,000 from 1 January 2016.
 
This measure increases the amount of the AIA to £1,000,000 from January 2019.
 
Current law
Since 1 April 2008 (Corporation Tax) and 6 April 2008 (Income Tax) most businesses, regardless of size, have been able to claim the AIA on their expenditure on plant or machinery, up to a specified annual amount each year (subject to certain conditions mentioned below). Summer Budget 2015 set the permanent limit of AIA to £200,000 from 1 January 2016.
Businesses are able to claim the AIA in respect of their expenditure on both main rate and ‘special rate’ plant and machinery. There are however certain exceptions, set out in section 38B of the Capital Allowances Act 2001 (CAA), the main exception being expenditure on cars.
The AIA is a 100 per cent upfront allowance that applies to qualifying expenditure up to a specified annual limit or cap. Where businesses spend more than the annual limit, any additional qualifying expenditure will attract relief under the normal capital allowances regime, entering either the main rate or the special rate pool, where it will attract writing-down allowances at the main rate or special rate respectively.