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Tax body: Capital Allowance hike ‘well-intentioned but confusing’

January 22, 2013

A leading tax body says that the constant changes to the capital allowances regime (including the latest ten-fold rise in the Annual Investment Allowance limit) is likely to cause confusion for small companies, and lead to accounting errors.

Ten-fold increase in the AIA from January 2013

The Association of Taxation Technicians (ATT) has submitted its response to the draft Finance Bill, which includes the proposed increase in the AIA from £25,000 to £250,000 for a two-year period beginning 1st January 2013.

The AIA permits qualifying businesses to claim tax relief on capital expenditure, however the headline figures can differ significantly from the allowances companies can actually claim tax relief against, depending on accounting year-end dates and the amount of eligible expenditure that was incurred before 2013.

In fact, the AIA limit was only slashed from £100,000 to £25,000 in April 2012 – before being increased significantly a matter of months later.

The ATT points out that, within a period of just 39 months, “there can be as many as seven occasions when the precise dating of expenditure determines how much tax relief the business will get each year on its capital expenditure.”

Body suggests allowing firms to opt out of new AIA limit

The organisation’s president, Yvette Nunn, acknowledged that the proposals may be ‘well-intentioned’, but will no-doubt end up causing confusion and an increase in accountancy costs for limited companies that want to claim capital allowances.

Nunn suggested that firms could opt out of the new £250,000 limit, as the previous £100,000 limit was more than sufficient for the vast majority of small firms.

“We are urging the Government to allow businesses to elect out of the confusing varying limits and into a flat limit of £100,000 a year from April 2012 for the whole affected period. We think that this would work well for businesses, HMRC and the economy.”