Investment tax incentives are too complex

Wednesday July 27th, 2011

Schemes designed to encourage smaller firms to invest in new equipment and plant equipment are too complicated and are doing little to boost business growth, found by a new study by the Open University.

Capital allowances allow firms to write down some of the monies paid out in purchasing new equipment against taxable profits.

But the Open University survey of small businesses revealed that many firms struggle to come to grips with the complexities of the system and are, as a result, missing out on tax breaks.

The research, which took in some 950 firms, revealed that just 8% of respondents thought the rules governing capital allowances were easy to understand.

Some 19% rated them as acceptable, 31% described them as complicated, while 42% had no view or simply left decisions to their accountants.

The danger to the overall economy is that many smaller enterprises lack the equipment to compete in a global and demanding market.

Meanwhile, there are changes afoot to the capital allowance system. Under the existing rules, first year allowances mean that firms can set investments of £100,000 against tax. But as from April 2012, that upper limit is to be reduced to just £25,000.

The Finance and Leasing Association (FLA) has produced data showing that asset finance lending grew by 25 per cent to £1.7 bn in May compared with the same period a year ago.

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