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.