A surprise announcement in the Autumn Statement was the increase in the AIA from £25,000 to £250,000 from 1 January 2013; a larger surprise especially because it had only been reduced from £100,000 in April. So, should you consider delaying expenditure to take advantage?
Firstly, remember what the allowance does. It applies to capital purchases where you can claim Capital Allowances; largely, qualifying plant and machinery. It gives 100% tax relief in the year of purchase, accelerating your tax relief compared with writing down allowances over an extended period.
Secondly, consider how much AIA will be available during your accounting period. The maximum potential AIA available will be calculated on a pro-rata basis, bearing in mind the different AIA rates of £100,000 up until 5 April 2012 (31 March 2012 for corporation tax), £25,000 from then until 31 December 2012, and £250,000 thereafter. Remember that the AIA may have to be shared with connected businesses.
Thirdly, consider when that AIA can be used. There are complicated rules which determine how much of your total AIA can be used for expenditure in different parts of your accounting period, i.e.
up until 5 April 2012 (31 March 2012 for corporation tax);
from 6 April / 1 April to 31 December 2012; and
from 1 January 2013 until the end of your accounting period.
There is insufficient space to explain these rules fully here, and a full explanation is available however, suffice it to say that the rules within the draft legislation are tortuous. In brief, the rules prevent expenditure incurred prior to 1 January 2013 benefitting from the increased AIA. Deferring qualifying expenditure until 1 January 2013 or later could therefore be a benefit. Further, you will never have a complete £250,000 AIA available until the accounting period starting after the increase on 1 January 2013. So deferring qualifying expenditure until after that could sometimes be more beneficial.
Finally, consider how much expenditure you have already made for AIA, and how much more you expect to spend before your year end. Perhaps you have ample AIA available anyway without delaying expenditure, or perhaps you will spend so much that the timing will be irrelevant.
So when is expenditure incurred? Expenditure is generally treated as being incurred on the date on which the obligation to pay becomes unconditional. In most cases this will be the delivery date. However, there are additional rules to counter non-commercial arrangements. For example if the required date to pay is more than 4 months after the unconditional obligation to pay, the actual date of payment can become the date of the expenditure. In the case of assets purchased using hire-purchase, the date that the asset is actually brought into use is relevant.