People keep complaining to me how complicated the AIA transitional rules are – not least because they work differently when the allowance goes down (£100k to £25k) and when it goes up (£25k to £250k).
I think they’re not all that complicated, but the way they’re presented in the legislation and guidance is fiddly. If you look at them slightly differently, things become a lot easier.
The easy way
The way I think of it is to ignore the actual rules, and say:
1) When the allowance goes down, it stops at the date of change and is replaced by a new lower allowance. Expenditure before the date of change can use either of these allowances; afterwards, just the lower one.
2) When the allowance goes up, it continues and is supplemented by an additional allowance. Expenditure after the date of change can use either of these allowances; beforehand, just the lower one.
Application to existing rates
- On 31 March 2012 the £100kpa allowance stopped.
- On 1 April 2012 a new £25kpa allowance started.
- On 1 January 2013, the £25kpa allowance was supplemented with an additional £225kpa (sic) allowance.
These three allowances – the £100kpa, £25kpa, and £225kpa – are regarded as entirely separate lumps.
All you need to do is look at the date of any bit of expenditure, and ask yourself which of the three possible allowances were available at that date. Then you can choose which allowance you use (if there are two available) against any particular bit of plant.
To take a company with a 28 February 2013 year end:
- In the month to 31 March 2012, it has 1 month’s worth of the £100k allowance (£8,333)
- In the 11 months from 1 April to 28 February 2013, it has 11 month’s worth of the £25kpa allowance (£22,917)
- In the 2 months from 1 January to 28 February 2013, it also has 2 month’s worth of the £225kpa allowance (£37,500).
Expenditure before 31 March 2012 can use allowances 1 and/or 2.
Expenditure between then and 31 December can only use allowance 2, and only to the extent that it hasn’t been used already.
Expenditure after 31 December can use allowances 2 and/or 3 (again to the extent that allowance 2 hasn’t already been used).
If the £500k allowance uses the same transitional rules as the £250k allowance, then there should be no problem.
If not, I shall throw my hands up in horror like the rest of you 🙂
EDIT: checking the TIIN, it looks as though the transitional rules will be the same and so the above should apply.