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AIA Anomaly: April 2012 even more relevant than you thought

As is well known, Annual Investment Allowance ("AIA") is being reduced from £100,000 to £25,000. The reduction applies in full to accounting periods beginning after 5 April 2012 (or 31 March 2012 for companies) but where an accounting period spans 5 April (or 31 March), transitional rules apply to give a proportion of the old limit plus a proportion of the new one. So, for example, for a company accounting period ending on 30 April 2012 the AIA limit is 11/12 x £100,000 + 1/12 x 25,000 = £93,750.

So far so sensible: but the curious point is that the transitional limit so computed applies (in effect) only to expenditure incurred before 5 April / 31 March. AIA for expenditure which is incurred after 5 April / 31 March 2012 in a transitional period is restricted to just the relevant proportion of the new limit. Thus if a company with a 30 April year-end incurs £100,000 of relevant expenditure in April 2012, it will qualify for AIA of just £2,083; by contrast the same expenditure incurred a month earlier will get AIA of £93,750. Even odder, if the accounting period is shortened to end on 31 March 2012, expenditure incurred in April 2012 as part of the non-transitional accounting period ending on 31 March 2013 will potentially qualify for AIA of £25,000.