The Association of Taxation Technicians (ATT) sets out its concerns in its response to HM Revenue and Customs (HMRC) on the draft Finance Bill provisions on the Annual Investment Allowance (AIA). This is the allowance that enables businesses to claim full tax relief on eligible capital expenditure.
The complexity arises because of the way in which the AIA is calculated and the fact that different businesses will have different accounting year ends.
Under the Government’s proposals the AIA limit is being increased for the two year period between January 1 2013 and December 31 2014 from £25,000 to a headline figure of £250,000. However, in reality, the actual limit on qualifying expenditure from January 1 2013 can be less than £25,000 depending on the firm’s accounting year end and the level of its qualifying expenditure incurred before January 1 2013.
As the AIA limit was only reduced from £100,000 to £25,000 from April 1 2012, the combined effect of that reduction and the proposed temporary increase is 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.
ATT President Yvette Nunn said: “These proposals are well-intentioned but will be very problematic for small firms in particular. The arithmetical complexities involved will lead to error and confusion and result in increased professional costs for businesses and an unnecessary diversion of HMRC resources into policing the cliff edges at the critical dates.
“The majority of SME businesses spend far less than £250,000 every year. For them, it would be far simpler for the old £100,000 annual limit to run through to December 31 2014. In that way, there would be only one cliff edge. So 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.
“Small firms and entrepreneurs are the life blood of the economy. Encouraging these businesses is vital for Great Britain. If it looks too complicated to start and manage a business then we will deter the innovation and enterprise we need to get our economy motoring again.”
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Susie Hughes © Shout99 2013