One of the surprise announcements in the Autumn Statement 2012 was the decision to increase the Annual Investment Allowance (AIA) from 1 January 2013 to £250,000. The increase will apply for two years.

Obviously, this is an attempt to focus the minds of entrepreneurs on investment. For profitable, self-employed traders this could be a useful tax planning tool providing a means to drastically reduce higher rate tax payments. Indeed all businesses should consider this change as an opportunity to bring forward the tax relief on qualifying equipment purchases.

There may be an opportunity to quite legitimately create tax losses if the AIA claimed exceeds taxable trading profits for the year. If the losses can be carried back, perhaps tax paid in earlier years can be reclaimed… However, beware if your accounting period falls in the tax year 2013/14 or later, as loss relief may then be restricted by the new cap (see below).

We would advise business owners to consider a rounded approach to investment decisions as it would be imprudent for the “tax tail” to unduly influence other commercial considerations. For example, how would the capital expenditure be funded without depleting working capital?

Please contact us if you would like to discuss how your business would best make use of this new opportunity.

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