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Using the Chancellor's own figures, the new increase in Annual Investment Allowance seems to be aimed at a very small number of businesses. TW Ed considers the numbers...

The significant increase in the Annual Investment Allowance (AIA) announced in the Chancellor's 2012 Autumn Statement will have been welcome news for many businesses. From 1 January for the next two years to 31 December 2014, up to £250,000 per year of eligible capital expenditure can secure immediate 100% tax relief.

Both the Autumn Statement itself, and the subsequent Tax Information and Impact Note stated that this reversal was expected to cost more than £2.2 billion so it is clearly a vitally important part of the Chancellor's measures to boost economic growth. But if so important, why did the Chancellor reduce the AIA down to £25,000 in the first place?

When Mr. Osborne announced in his Emergency Budget Statement in June 2010 that the AIA would be reduced from £100,000 a year to just £25,000 from April 2012 he said "Over 95 per cent of businesses will continue to have all of their qualifying plant and machinery expenditure fully covered by this relief.”

But when he announced the increase to £250,000 a year in the 2012 Autumn Statement, he said "This capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain."

So it would appear that something like just one in thirty businesses in the UK is to enjoy the benefit of more than £2.2 billion' worth of incentives to invest, in return for kick-starting the economy. That seems a remarkably small section of the business community, to be charged with so important a task. Do these businesses know the pivotal role they are set to play over the next two years? Perhaps the Treasury should drop them a line and tell them. There being so few of them, it probably won't take that long...

Of course this is a little tongue in cheek. But a couple of simple questions:

1. If encouraging SME capital investment is so important to invigorating the economy as to warrant £2.2 billion, why did Mr. Osborne reduce the AIA from £100,000 a year down to £25,000 in the first place?
2. If the Chancellor is so keen to encourage business investment, why did he make the transitional rules for moving the AIA from £25,000 back up to £250,000 so restrictive? I expect most businesses will not be able to benefit fully from the change until well into 2013 - when they have a full accounting period under the new regime.

If anybody knows the answers, then please do get in touch!

Regards all,

TW Ed