Currently\nthe maximum Annual Investment Allowance (AIA) available on expenditure incurred\non Plant and Machinery (P&M) is \u00a31,000,000. From 1 January 2022 this drops\nto \u00a3200,000 \u2013 so how will the affect claimants whose accounting period\nstraddles this date?\n\n\n\nFirst,\nwe need to understand what happens to the AIA for short accounting periods. If\na business\u2019s accounting period is less than 12 months long, then the AIA is proportionately\nreduced. \n\n\n\nIt\nshould also be noted that a business can decide which expenditure to allocate\nthe AIA against, it is therefore important to consider the timing of capital\nexpenditure. \n\n\n\nWhere\nan accounting period straddles a change in the rate of the AIA we break the\naccounting period into two notional parts, the part before the change and the\npart after the change. The separate AIA entitlements for each of these notional\nperiods is calculated on a time apportionment basis, so for example a 12-month\naccounting period ending 31 March 2022 would be broken down into the following\n2 notional periods with the following time apportioned entitlements:\n\n\n\n31 December 2021 \u2013 9 Months - \u00a3750,000\nAIA (being 9\/12 x \u00a31,000,000)31 March 2022 \u2013 3 Months - \u00a350,000\n(being 3\/12 x \u00a3200,000)\n\n\n\nThese are then added together to give\nthe AIA for the whole accounting period of \u00a3800,000. \n\n\n\nThere is however a complication in the\nrules when the rate of AIA falls. Again, using a year-end of 31 March 2022 as\nan example, during the first notional period the business can utilise the full\n\u00a3800,000 calculated for the entire accounting year for expenditure incurred\nwithin that notional period, as if the change in rates did not exist.\n\n\n\nFor the second notional period which\nfalls after 1 January 2022, however, the maximum AIA that can be allocated to\nexpenditure within that period is limited to the time apportioned which falls\nat the reduced rate (calculated above as \u00a350,000). \n\n\n\nThis leads to a slightly counterintuitive\nresult whereby if a business buys P&M for \u00a3400,000 in the first notional period,\nand for \u00a3200,000 in the second notional period, ie total expenditure of \u00a3600,000,\nthen the claim in the second period is limited to a maximum of \u00a350,000 so the\nAIA claimed for the whole period is \u00a3450,000.\n\n\n\nWorse that than, if a company with a 31\nMarch 2022 year end were to delay spending \u00a3800,000 on P&M until 2022, they\nmay lose out on \u00a3750,000 of AIA.\n\n\n\nIn summary the 12-month maximum for\neach accounting period straddling 31 December 2021:\n\n\n\n\n Year\n End\n \n 1st\n Notional Period\n (\u00a3)\n \n 2nd\n Notional Period (\u00a3)\n \n AIA\n for 12 AP (\u00a3)\n 31 January 2022\n 916,667\n \n 16,667\n \n 933,333\n 28 February 2022\n 833,333\n \n 33,333\n \n 866,667\n 31 March 2022\n 750,000\n \n 50,000\n \n 800,000\n 30 April 2022\n 666,667\n \n 66,667\n \n 733,333\n 31 May 2022\n 583,333\n \n 83,333\n \n 666,667\n \n 30\n June 2022\n \n 500,000\n \n 100,000\n \n 600,000\n \n 31\n July 2022\n \n 416,667\n \n 116,667\n \n 533,333\n \n 31\n August 2022\n \n 333,333\n \n 133,333\n \n 466,667\n \n 30\n September 2022\n \n 250,000\n \n 150,000\n \n 400,000\n \n 30\n October 2022\n \n 166,667\n \n 166,667\n \n 333,333\n \n 31\n November 2022\n \n 83,333\n \n 183,333\n \n 266,667\n \n\n\n\n\n\n\n\nIn the first notional period the max AIA available is the total calculated for the 12-month accounting period, ie the fourth column. \u00a0In the second period the max AIA available is the total apportionment for that period, ie the third column. \n\n\n\nThe total claim for the period can\nnever exceed the total for the year, so a company with a year end of 30 June\n2022 that spends \u00a3600,000 in the first half of the year, and \u00a350,000 in the\nsecond half of the year, can only claim \u00a3600,000 in total, however in this\nexample it can allocate this \u00a3600,000 against the \u00a3650,000 expenditure however\nit sees fit.\n\n\n\nFor an unincorporated business where an\nasset is used partly in the business and partly for private use, the amount of\nAIA is reduced on a just and reasonable basis for that asset.\n\nFinally, as there are many rates of capital allowances, 100% first year\nallowances, general pool, and special rate pool it is important to allocate the\nAIA in the most beneficial way, remembering that not all assets qualify for the\nAIA, such as cars.