ICAEW Tax Rep 133/18: Finance Bill 2018-19 Temporary Increase to Annual Investment Allowance

Released 05 December 2018

The Institute of Chartered Accountants in England and Wales (ICAEW) has written to the Treasury highlighting a problem with draft annual investment allowance legislation.

Tax Rep 133/18 contains the text of a letter sent to Mel Stride, Financial Secretary to the Treasury, concerning Finance Bill 2018-19, Sch. 12, para 2(3) which ICAEW considers contains a potential trap, particularly for smaller businesses. The problem lies in the way the legislation deals with the increase in the annual investment allowance to £1,000,000 for a temporary period from 1 January 2019 to 31 December 2020 by splitting the higher and lower allowance periods with a new period starting when the allowance reverts to £200,000 from 1 January 2021.

Eg. A company with a year end of 31 March 2021, which spends £60,000 on 1 February 2021 and has no other capital expenditure in the year, will be given relief for only 90/365 x £200,000 = £49,315. This is even though the overall allowance for the period would be 275/365 x £1,000,000 + 90/365 x £200,000 = £802,740, and the actual expenditure is well below the £200,000 allowance pre and post the higher limit. Had the company incurred that level of expenditure evenly throughout the year, or indeed pre-1 January 2021, the full expenditure would have been relieved. The ICAEW suggests a simple solution would be to allow a company to elect out of the temporary increase, instead retaining a maximum allowance of £200,000 throughout.

View ICAEW Rep 133/18.

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