Introduction Background Note
10.The AIA was introduced in the Finance Act 2008. It is effectively a 100 per cent capital allowance available on most plant and machinery (although it is not available on cars) up to an annual limit, which was originally £50,000.
11.The AIA is available to most businesses, both incorporated and unincorporated, regardless of size. Any expenditure by businesses over the annual limit will attract writing-down allowances (WDAs) at either 20 per cent or 10 per cent per annum in the normal capital allowances regime. The AIA is given for a chargeable period and the annual limit is increased or decreased proportionately when the chargeable period is longer than or shorter than 12 months.
12.The introduction of the AIA represented a major simplification of the tax system, as the vast majority of UK businesses invest less than the upper limit of £50,000 and so, in time, will have no need to calculate WDAs annually. The AIA offers a generous cash flow advantage to businesses (in comparison to WDAs) and therefore acts as a significant incentive to invest in plant and machinery.
13.The AIA is available to:
	any individual carrying on a qualifying activity (this includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office);
	any partnership consisting only of individuals; and
	any company (subject to certain restriction).
14.In the case of companies in a group there is one AIA available to all the companies in the group.
15.In the case of singleton companies, each receives its own AIA unless, for example, it and another company are under common control. Where companies are under common control (for example, two companies owned by the same individual) each company will still be entitled to a separate £50,000 AIA, unless they are “related”.
16.The legislation provides that a company is related to another company in a financial year and, separately, that an unincorporated qualifying activity is related to another qualifying activity in a tax year, if either or both of:
	the shared premises condition; and
	the similar activities condition
are met in relation to the companies or the qualifying activities in that financial year or that tax year, as the case may be.
17.The rules provide businesses with almost complete freedom to allocate the AIA between different types of expenditure. For example, they may allocate it first against any expenditure on “integral features”, qualifying for the lower ten per cent “special rate” of WDA.
18.The rules also allow the persons in control the freedom to allocate the AIA between companies in a group or between “related” companies. There is a similar freedom in relation to the allocation of the AIA between “related” unincorporated businesses in common control. For example, in a group of five companies, all of the AIA could be allocated to one company or it could be split between all or any of the five, as the group might find most convenient.
19.At Budget 2010 the Government announced that the maximum amount of the AIA was to be increased from £50,000 to £100,000 for expenditure incurred on or after 1 April 2010 (CT) or 6 April 2010 (income tax), in order to provide further support for business investment. It also announced that a targeted anti-avoidance rule (TAAR) was to be introduced to accompany the AIA increase. This TAAR (amending provisions in Chapter 4 of Part 4 of the Income Tax Act 2007) comprises section 25 in Finance Bill 2010, for which there is a separate explanatory note.