AIA hike hobbled by complex transition rules

Tax publisher and capital allowances expert Ray Chidell has warned that while the tenfold increase in the annual investment allowance (AIA) is welcome, the increase to £250,000 from 1 January is undermined by “mind-blowing” transitional rules.

Draft legislation published on 11 December could tie businesses and their advisers up in administrative knots because potential clashes between two different sets of transitional rules for the reduction of the AIA to £25,000 in April 2012, and the latest increase, which takes effect ahead of the 2013-14 tax year.

Applying the rules set out in the legislation, Chidell noted that a simple formula breaking up the AIA available the three different rates applying to a 31 January 2013 year end would work out to £56,520. But further restrictions come into play, also including those from Finance Act 2011.

“The underlying problem is the political/economic obsession with tinkering with the tax system,” said Chidell. “AIAs did not exist before April 2008 but, over the first seven years of their life, we will have seen rates of £50,000, £100,000, £25,000, £250,000 and then once more £25,000. If we really want simplification of the tax system, we have to avoid this constant itchiness to tamper with the figures. The AIA is, after all, only about the timing of tax relief – it makes no difference at all to the amount of allowances ultimately given.”

About the author

Ray Chidell is the author of ‘Capital Allowances 2012-13’ and the ‘A-Z of Plant and Machinery’, published by Claritax Books. A more detailed explanation of how the AIA transitional rules will work will be available shortly as a free download article.

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Comments
dialm4accounts's picture

I'm still concerned it's companies only

dialm4accounts | | Permalink

The Autumn Statement document put this extension under "Allowances from corporation tax".  Does the £250,000 figure even apply to businesses that don't come within the charge to corporation tax?

M

AIA for income tax as well

raychidell | | Permalink

Hi

No, it definitely applies for income tax purposes as well. This is made clear in the draft legislation, in two ways:

First, the structure is to amend the relevant section of CAA 2001, which applies for both income tax and corporation tax.

Second, the draft legislation makes specific reference to income tax (e.g. in defining "the relevant date"). The Explanatory Notes to the draft legislation also refer to income tax as well as to CT.

Ray

dialm4accounts's picture

Thank you

dialm4accounts | | Permalink

Thanks Ray - that's reassuring!

M

plummy1's picture

Tinkering is one word for it    1 thanks

plummy1 | | Permalink

I have to say to me this is just more evidence of the governments sense of panic in not knowing which economic levers and buttons to press to get the economy sorted. They reduced the AIA to try and secure more tax revenue and now realise they are strangling growth.

They should have left AIA at £100,000 and not have tinkered with the system back in April 2012.

 

squay's picture

Is this tinkering deliberate?

squay | | Permalink

With with introduction of simplified accounting in next April CAs will be disallowed completely. Maybe the government is hoping to push the non represented tax payers into this regime by making the tax system deliberately more complicated with them possibly paying more tax than necessary. As for accountants the more complex tax gets, the higher the fees. So has the government shot itself in the foot in trying to "help" small businesses or is it trying to drive a wedge between represented and unrepresented taxpayers.

download full technical analysis

dallman | | Permalink

IS there any chance you could help? The download link just syas page not available? Is tehre a problem with the hyperlink?

Download full technical analysis

martin1971 | | Permalink

I've got the same problem, download link not available

I think that is it    1 thanks

The Black Knight | | Permalink

plummy1 wrote:

I have to say to me this is just more evidence of the governments sense of panic in not knowing which economic levers and buttons to press to get the economy sorted. They reduced the AIA to try and secure more tax revenue and now realise they are strangling growth.

They should have left AIA at £100,000 and not have tinkered with the system back in April 2012.

 

They simply do not have a clue what to do. Simple lack of brainpower.

not that anyone will listen. but it is

1, Stop brushing problems under the carpet

2, Invest and actually deal with Tax evasion....this will provide billions in a very short space of time.

3, Eliminate waste and unneeded and unwanted services by privatisation and improved competition.

4, Invest in skills and start up capital to stimulate innovation and manufacturing rather than trying to buy in Jobs.

5, listen to small business.....big business can look after itself. Its not an act of god that our town centres have disappeared but government policy.

6, lower tax rates to increase the circulation of money.

 

Is there a reason we cannot vote for the solution?

plummy1's picture

HMRC Guidance

plummy1 | | Permalink

Here is a link to the HMRC guidance which may be useful if you have been unable to get access to Rays article. 

http://www.hmrc.gov.uk/tiin/2012/tiin1278.pdf

Link not working -  also get

p.seligman | | Permalink

Link not working -  also get the message -

Sorry, this page is not available at the moment

John Stokdyk's picture

Sorry for the non-functioning link, folks    1 thanks

John Stokdyk | | Permalink

Ray has completed the article and it is ready for download - we have just encountered a gremlin in the linking page. Our production team was out at lunch when we found out, so we'll get it put right as soon as they're back.

In the meantime, the names of anyone clicking the request form should have been recorded and we'll alert you by email when the link is fixed.

Please accept my apologies for the error and delay. We hope to get you Ray's wisdom asap.

Update: The link is now working - you can get Ray's technical analysis here. Thanks all for your patience.

Do these transitional rules impact on deposits?

whopkinscom | | Permalink

I paid a small reservation deposit on a new pickup (VW Amarok) before Christmas (one side of the transition) but will be picking up and paying the full finance deposit on the pick up in a few weeks time (the other side of the transition).

 

Thanks,

 

Will