AIA rise ‘may bring only complexity’ for SMEs

Increasing the annual investment allowance (AIA) to £1 million will not help most small businesses, and may even be harmful for them, the Association of Taxation Technicians (ATT) has said.

In Budget 2018, the AIA was temporarily increased from £200,000 to £1m over two years from 1 January 2019.

Businesses investing in plant and machinery can use the allowance to deduct the full value of qualifying items from their profits before tax.

While this means some businesses will be able to gain more tax relief on their investments, HMRC statistics show only around 3% of businesses currently invest enough to benefit from the rise.

For the other 97% of businesses, the ATT said the change to the allowance "may only bring complexity", as they will have to adapt to new rules.

Michael Steed, co-chair of the ATT's technical steering group, said:

"The AIA has ‘yo-yoed' around since its introduction in April 2008. Businesses repeatedly call for stability in the allowance in order to be able to plan for capital expenditure.

"But the transitional rules required in order to cope with the fluctuating levels have produced unintended consequences."

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