CA23087 - Plant & Machinery Allowances (PMA): Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: Restrictions on entitlement - general
CAA01/S38A and S38B, S51A to S51N
Restrictions on AIA entitlement
A person’s entitlement to an AIA for each of his or her qualifying activities may be restricted where he or she -
- controls a company which carries on more than one qualifying activity, or a group or groups of companies, or “related” singleton companies CA23088
- controls “related” unincorporated businesses CA23089
- incurs expenditure on plant or machinery provided or used partly for other purposes (see example 1 below);
- receives or is likely to receive a partial depreciation subsidy in respect of the expenditure (see example 2 below);
- enters into a transaction with a “connected” person or enters into an arrangement to obtain an AIA to which he would not otherwise be entitled (see under “Anti-avoidance” below).
Use of asset partly for other purposes
Example 1
Fred runs an unincorporated business of leasing caravans and mobile homes to holidaymakers. His accounting period runs from 6 April to 5 April each year. In 2008-09 he buys a new caravan for £75,000, which he hires out for 90% of the year, but uses privately for his own and his family’s holidays for 10% of the year. Fred has not bought any other plant and machinery in 2008/09 and claims AIA in respect of his new caravan. His AIA must be reduced to an amount that is “just and reasonable” to reflect the private use, so Fred claims a reduced AIA of 90% x £50,000 = £45,000 (CAA01/S205). In 2009-10 Fred buys a cottage in Devon as a holiday home and so stops using the caravan privately. He now uses the caravan wholly for the purposes of his business.
| Year 2008-09 | Total less total allowances £ | Business use (90%) £ | Private use (10%) £ |
| Expenditure on caravan | 75,000 | 67,500 | 7,500 |
| Less AIA for 2008-09 | (50,000) | (45,000) | (5,000) |
| Balance in single asset pool | 25,000 | 22,500 | 2,500 |
| Less WDA at 20% | (5,000) | (4,500) | (500) |
| Balance in single asset pool | 20,000 | 18,000 | 2,000 |
| Year 2009-10 | Expenditure | (100%) | (Nil) |
| Balance | 20,000 | 20,000 | Nil |
| Less WDA at 20% | 4,000 | 4,000 | Nil |
| Balance at end 2010-11 | 16,000 | 16,000 | Nil |
Partial depreciation subsidy
A person who has a qualifying activity may receive a payment to cover depreciation of an asset used in that qualifying activity, which may reduce his or her entitlement to an AIA.
Example 2
Ginger is an employee who works from home. She purchases a computer, printer and fax machine for £3,000 to use wholly for the purposes of her work. Her employer decides to pay her a partial depreciation subsidy of £1,000 to cover part of the depreciation of these assets. Ginger claims an AIA on her expenditure, but this must be reduced to a “just and reasonable” amount to reflect the partial depreciation subsidy. So her claim is for an AIA of £3,000 - £1,000 = £2,000 (CAA01/S209-S212) CA27500.
Anti-avoidance rules - no AIA
There are anti-avoidance rules in Chapter 17 Part 2 CAA01 CA28000. The rules designed specifically to deny an AIA in certain circumstances are as follows:-
- Connected persons transactions: if a person incurs expenditure in a transaction with a connected person CA28800, no AIA is due (CAA01/S214 & S217). There is an example of a connected person transaction (where brothers attempted to exploit the legislation to obtain more allowances than was intended) at CA28100. This anti-avoidance rule prevents such exploitation and denies an AIA in all cases where the parties to the relevant transaction CA28200 are connected.
- Transactions to obtain allowances (see CA28300) - either where the “sole or main benefit” of the transaction appears to have been the obtaining of an AIA (CAA01/S215 & 217) or where “one of the main purposes” of the arrangement was to obtain an AIA to which the person would not otherwise be entitled (CAA01/S218A). The latter, somewhat less stringent, test was introduced in FA08, specifically to protect the valuable AIA from attempts at exploitation.
- Sale and leaseback arrangements (CAA01/S216 & S217 see CA28300)
- Additional VAT liabilities - where an AIA is prohibited on expenditure under any of the above anti-avoidance rules, then any additional VAT liability arising in respect of that expenditure will similarly be denied any AIA (CAA01/S241).
