Chapter 12 Capital allowances – FYA and the AIA Flashcards
12.1 First-year allowances
Give businesses an enhanced rate of capital allowances on plant in the accounting period in which the expense is incurred. FYA’s are not time apportioned in short or long accounting periods. The following types of expenditure attract FYAs at 100%:
• Expenditure incurred before 6 April 2023 on plant and machinery for an electric vehicle charging point
• Expenditure incurred before 1 April 2025 on cars which are electronically propelled or have CO2 emissions not exceeding 50g/km
• Expenditure incurred before 6 April 2025 on zero emissions goods vehicles
The allowance only applies if the assets are acquired unused and are not secondhand. Capital expenditure on R+D incurred by a trader is also eligible for a 100% FYA.
12.2 The annual investment allowance
Gives a 100% allowance for investment in plant up to £1 million for 1 January 2019 to 31 December 2020 and from 1 January 2020 the limit is £200,000. If the accounting period is not 12 months, the limit is proportionally reduced. Expenditure in excess of the AIA will be dealt with under the standard rules for capital allowances. Any unused AIA is lost. The business can decide which expenditure to allocate the AIA against, the AIA rules are in addition to the 100% FYA.
12.3 AIA restrictions
The AIA is available to all business although only one AIA is available to each business each year. Sole traders and partnerships where all the members are individuals will each receive an AIA, even if a member is involved in two businesses, both businesses will receive an AIA.
However where an individual is a sole trader with more than one trade which are related to each other, he is entitled to one AIA between the trades. The trades are related to one another if:
• The businesses are carried on from the same premises, or
• The trades represent similar trading activities
Partnerships which include a company as a partner are not eligible for the AIA. No AIA or FYA is available if the plant and machinery is acquired from a connected person. For these purposes a connect person is:
• Spouse
• A relative of the individual or the individual’s spouse
• The spouse of the relative of the individual
• The spouse of the relative of the individual’s spouse
• A partner in a partnership is connected with both the other partners and the spouse of the other partners
• Relative means siblings, ancestors or lineal descendants
12.4 AIA apportionment – 1 January 2021 periods
From 1 January 2021, the maximum AIA reduces from £1 million to £200,000. This means for accounting periods which straddle 1 January 2021, the AIA is based on a proportion of the AIA incurred before 1 January 2021 and after.
