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Article contributed by ACCA

How the capital allowances regime and annual investment allowance will change.

Capital allowances: low emission vehicles

Legislation will be introduced in Finance Bill 2015 to extend the 100% allowance (FYA) for expenditure incurred on cars with low carbon dioxide emissions and electrically propelled cars for an additional three years to 31 March 2018.

Update of the enhanced capital allowances schemes for energy-saving and environmentally beneficial (water efficient) technologies

Secondary legislation will be introduced to update the list of technologies that qualify for the 100% energy-saving and water-efficient capital allowances from 1 April 2013. Since its introduction in 2001 and 2003 respectively, the list of qualifying technologies is updated annually. View the Enhanced Capital Allowances list. Further details of the measure are also available.

First year allowances for energy-saving technologies and the renewable heat incentive for Northern Ireland

Legislation is to be introduced to ensure that plant and machinery in Northern Ireland that qualifies for the renewable heat incentive and enhanced capital allowances for energy-saving technologies is treated in the same way as similar plant and machinery located in the rest of the UK with effect from 1 April 2013. Further details of the measure are also available.

Capital allowances for railways and ships

Expenditure on railway assets and ships had previously been excluded from the first year allowance regime for energy efficient and environmentally beneficial plant and machinery. Legislation will be introduced to include such expenditure within the first year allowance regime with effect from 1 April 2013. Further details of the measure are available here. 

Annual investment allowance – transitional rules

Although there were no further changes to the annual investment allowance in the 2013 Budget, earlier changes to the allowance will be affecting businesses now. The decision to increase the annual investment allowance (AIA) ten-fold from £25,000 to £250,000 was announced by George Osborne in the 2012 Autumn Statement and will be included in the 2013 Finance Act.

The move to increase the limit to a two year period – for qualifying capital expenditure incurred in the period from 1 January 2013 to 31 December 2014 – is a welcome one for small businesses and, from the perspective of the economy, is intended to boost expenditure and increase growth. However, the fact that the allowance has yo-yoed so much means there are transitional rules which will, no doubt, cause some computational headaches for practitioners.

The AIA limit has changed several times since it was first introduced, as follows:

Date of expenditure Maximum AIA
01/04/2008 – 31/03/2010 £50,000
01/04/2010 – 31/03/2012 £100,000
01/04/2012 – 31/12/2012 £25,000
01/01/2013 – 31/12/2014 £250,000

When considering how much will qualify for the AIA, it is necessary to time apportion the AIA limits where the accounting period straddles any of the dates on which there is a change in the limit. It is necessary to time-apportion the maximum limit but that is not the end of the story. There are further rules which mean that the timing of the expenditure during the accounting period can be all-important in determining whether expenditure will attract the AIA or not.

Each change in the rate comes with its own set of complications and transitional rules. We will look at some of these by way of example 1.

Let us now consider a company with a year-end that straddles the latest change on 31 December 2012 by way of example 2.

Finally, there may be situations where a company’s accounting period may straddle both transitional dates. Once again, let us consider this by way of example 3.


The ten-fold increase in the AIA limit is a welcome development for small businesses. However, as can be seen from above, the changes do bring with them some traps for the unwary.

It is recommended that businesses seek advice before incurring capital expenditure in order to avoid any potential pitfalls.