CIOT welcomes setting of new permanent level for AIA

The Government’s Growth Plan, published today, contains the following key tax measures for corporates:

• Cancellation of the planned increase in the rate of corporation tax to 25 per cent, from April 2023, for companies making profits in excess of £250,000. The rate of corporation tax will remain at 19 per cent.
• Permanently setting the rate of Annual Investment Allowance (AIA) at £1 million, rather than it reverting to £200,000 on 1 April 2023 as previously scheduled.
• Amendment of the ‘super-deduction’ rules as a consequence of the 19 per cent rate of corporation tax being retained.

Commenting on the AIA announcement, Adrian Rudd, Chair of the CIOT’s Corporate Taxes Committee, said:

“We welcome that the AIA has been set at a permanent and substantial level. The AIA is intended to reduce the administrative burdens of calculating capital allowances, and incentivise investment by providing a 100 per cent relief on qualifying capital expenditure. However, its level has changed six times since its introduction in 2008, ranging from just £25,000, to its current level of £1 million. These fluctuations can have some harsh, counter-intuitive consequences, as the examples on GOV.UK illustrate.¹

“Businesses require consistent levels of relief to help them plan and grow. The overwhelming feedback that we receive is that stability and certainty is more important to businesses than any particular rate of relief."²

The Government’s Growth Plan states that “The Government will amend some of the technical provisions for the super-deduction as a consequence of the Corporation Tax rate being retained at 19 per cent from 1 April 2023. This will ensure that the relief continues to operate as intended.”³

Adrian Rudd continued:

“The super-deduction was introduced to incentivise investment, while also ensuring that the expected corporation tax rate increase to 25 per cent did not encourage deferral of such expenditure. So, notwithstanding the cancellation of the rate increase, the incentive to invest remains, and we hope today’s announcement doesn’t curtail or complicate the benefits of the super-deduction.”

“More widely, we would suggest that the Government should take advantage of the cancellation of the increase in the corporation tax rate to fully reverse the reintroduction of the complex ‘Associated Company’ rules, which were not felt necessary until the proposal to increase the rate to 25 per cent.”

Notes

1. https://www.gov.uk/guidance/annual-investment-allowance-limit-changes-during-accounting-periods
2. Our response to the Capital Allowances Review conducted following the Tax Plan announced by the Government at the Budget in March 2022 commented that businesses require consistent levels of relief to help them plan and grow and the aim should be to provide a sustainably supportive treatment of business capital investment: Potential Reforms to UK’s Capital Allowance Regime (tax.org.uk)
3. Paragraph 4.16