Interaction of the Annual Investment Allowance, full expensing, 50%
first-year allowance and writing-down allowances
Kevin Smith
The introduction of full expensing including the 50% first-year allowance, is a clear positive for companies. In particular, for those companies who regularly annually invest in excess of the
£1 million Annual Investment Allowance (AIA) limit on plant or machinery assets.
Larger corporates and property investment companies typically invest well in excess of £1 million annually on main rate and special rate plant and machinery. When this occurs, the four categories of plant and machinery allowances are likely to be simultaneously encountered when computing the capital allowances for the year.
The following example demonstrates the interaction between all four plant and machinery allowances categories:
Company A, a property investment company, incurs a total of £1,350,000 expenditure in the period ending 31 March 2024 on the following assets:
- Air conditioning: £500,000
- Electrical system: £400,000
- Ventilation: £250,000
- Sprinkler system: £150,000
- Fire alarm: £50,000
The special rate expenditure is therefore £1,150,000 and main rate expenditure is £200,000.
No other expenditure is incurred on plant or machinery in the period by Company A and it is not part of a group or under common control.
For the 31 March 2024 tax return, Company A computes its allowances as follows:
£1m AIA – is allocated to the special rate expenditure =
£1,000,000
* (£1,150,000 less £1m AIA) = £150,000 x 50% =
£75,000
£200,000 main rate expenditure is claimed as 100% full expensing =
£200,000
Total claimed for the period ending 31 March 2024
£1,275,000
* The 50% first-year allowance is claimed on the remaining £150,000 special rate expenditure.
The £1m AIA is allocated first and then the 50% first-year allowance is claimed on the £150,000 balance. The 50% first-year allowance is not claimed first.
The £75,000 remaining special rate expenditure is allocated to the special rate pool in a subsequent period, not in the current period. The writing-down allowances would then be claimed in that subsequent period.
For added understanding, assume that for whatever reason, only £170,000 of the £200,000 main rate expenditure is claimed as full expensing. In this instance, the £30,000 balance would be allocated to the main pool for the period ending 31 March 2024. The 18% writing-down allowance would be claimed on the £30,000 in the 31 March 2024 period.
© Smith Kelland Limited
This is for general information purposes only. It is not advice and is not intended to be advice.
Kevin Smith
BSc MRICS MSc (Property Investment)
For 25 years, my capital allowances experience and knowledge has been, and continues to be, crafted and refined the one and only way – by always working and flourishing at the ‘coalface’. Actually doing the work – the research, detailed analysis, surveys, liaising, problem solving, decision making, referencing the legislation and deciphering its minute parts.
I thrive on working with and advising UK and overseas property investors, landlords and occupiers. Assisting each to achieve their full capital allowances entitlement under the legislation. I am fortunate to advise and work on a significant number of construction projects and property transactions of varying values and complexity.