Surprises in the Autumn Statement
Businesses looking to upgrade their infrastructure have welcomed the Chancellor’s unexpected announcement in the 2012 Autumn Statement that the annual investment allowance (AIA) limit will increase to £250,000.
The increase, effective from 1 January 2013, will last for two years, after which it will return to £25,000. The AIA enables businesses to write off the cost of qualifying capital expenditure against tax in the year of purchase and was reduced from £100,000 to £25,000 from April 2012.
A wide range of expenditure qualifies for AIA, including most plant and machinery and some fixtures and integral features of buildings, although not land or the buildings themselves. The most common exclusion is cars, but there is a 100% first-year allowance for cars with carbon dioxide emissions of 110g/km or less. That limit will reduce to 95g/km from April 2013.
Another business-friendly measure in the Autumn Statement is a further cut in the main rate of corporation tax, to 21%, from April 2014. The current 24% rate is due to drop to 23% in April 2013. The Chancellor also confirmed that small unincorporated businesses below the VAT registration threshold will be able to calculate their tax on a new cash basis, by taking business cash received in the year and deducting business expenses paid.
That means they will not have to distinguish between revenue and capital expenditure and can ignore debtors and creditors. Another measure will allow unincorporated businesses of any size to deduct certain expenses on a flat rate basis instead of deducting the actual expenditure they have incurred.
The Autumn Statement marked the demise of an attempt, described as controversial, to require senior people integral to running a business organisation to have income tax and national insurance contributions deducted at source under PAYE. The idea was to stop people avoiding PAYE by being paid through a service company.
After consultation, however, the Government decided that such a measure would be too complex and would not be sufficiently targeted on avoidance. Instead, the Government will continue strengthening its approach to policing the existing IR35 rules.