The annual investment allowance is set to temporarily increase from £200,000 to £1 million, allowing businesses to gain more tax relief on their investments.
This will take effect from 1 January 2019 and remain in place until 31 December 2020, after which it is due to revert back to £200,000.
Using the annual investment allowance, businesses can deduct the full value of qualifying plant and machinery from their profits before tax.
This does not include cars, items owned for another reason before they were used in the business, or items given to the business or business owner.
Suren Thiru, head of economics at the British Chambers of Commerce, said:
“This announcement will provide a major enticement for firms to invest and grow.
“It will give companies across the UK the confidence to push ahead with investments in plant and machinery, property and staff training.”
However, the Association of Taxation Technicians (ATT) said the increase “may bring only complexity for many businesses”.
Since its introduction in 2008, the annual investment allowance has changed several times.
This resulted in transitional rules being set with each change, which the ATT says has made it difficult for businesses to plan for capital expenditure.
They also note that only around 3% of businesses currently exceed the AIA of £200,000, according to HMRC statistics, so the other 97% are unlikely to see any benefit from the change.
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