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Annual Investment Allowance (AIA) increased to £250,000

One of the most significant announcements made during the Chancellor’s Autumn Statement was the temporary increase of the Annual Investment Allowance from £25,000 to £250,000.

The new threshold will apply to qualifying investments in plant and machinery for two years from 1st January 2013, and is aimed to stimulate investment by smaller companies in particular.

This is a significant change in tack for the Coalition Government, which previously slashed the AIA limit from £100,000 to a mere £25,000. The new limit is expected to cover the total investment made by 99% of the UK’s businesses.

Reaction to the AIA announcement

Paul Belsman, National Head of Tax at RSM Tenon said that the increase was certainly welcome; “Business will find this helpful to cashflow if they are investing out of profit, as the tax relief will be accelerated; whether it actually tips them into investing sooner or at all remains to be seen. On balance it will encourage investment.”

Matt Taylor, from Rockpool Investments, pointed out that the tenfold increase “equates to a £40,000 grant to any business that wants to grow by investing in new equipment” and represents “a nice simple change that entrepreneurs can work with that doesn’t distort the market.”

The Forum of Private Business stated that; “Given that UK businesses are currently sitting on £700bn of cash reserves, it could be argued that the earlier actions of the Chancellor created a disincentive to invest through 2012, at a time when business needs confidence to create growth.

Other measures of interest to limited company owners

Other points of interest for limited company owners in particular, include:

  • An additional 1% cut in the main rate of Corporation Tax – to 21% from April 2014. The ‘small profits’ rate paid by smaller companies remains at 21%, for profits of £300,000 or less per year.
  • A reduction in the tax-free pension contributions limit from £50,000 to £40,000 from 2014/15.
  • The lifetime pensions contributions limit will be reduced from £1.5m to £1.25m from 2014/15.
  • Plans to implement the UK’s first General Anti-Abuse Rule (GAAR) to clamp down on tax avoidance.
  • Confirmation that the Government will invest £1bn in a new Business Bank.
  • Facilitate UK Export Finance (UKEF) to provide up to £1.5bn in new lending to finance small companies’ exports.
  • The doubling of the Small Business Rate Relief scheme will continue for another year from 1st April 2013 – 500,000 small businesses are expected to benefit.
  • Small self-employed business will be able to calculate their tax liabilities on a tax basis from April 2013 – if their annual receipts are £77,000 or less.
  • The ‘controlling persons’ proposals to tax influential interims and consultants on a PAYE basis have been shelved, as the IR35 rules already exist to deal with such cases.
  • The basic and higher rate income tax allowances are to rise over the next two years, but by far less than the rate of inflation.

See our key points article for further details on these additional announcements.

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