Section 7 and Schedule 1: Temporary Increase in Annual Investment Allowance

British Tax Review Issue 4, 2013

11 Pages Posted: 29 Jul 2019

See all articles by Andrew Harper

Andrew Harper

New Street Chambers

Li Liu

International Monetary Fund (IMF)

Date Written: 2013

Abstract

This paper examines the ten-fold temporary increase in the UK Annual Investment Allowance (“AIA”) maximum allowance, raised from £25,000 to £250,000 for the calendar years 2013 and 2014 by UK Finance Act 2013 section 7 and Schedule 1. The allowance provides accelerated depreciation for UK firms in the form of 100% expensing. We carry out a technical analysis of the UK statutory provisions for businesses having accounting periods which overlap the beginning or end of the temporary increase, finding them to be made complicated by a series of capped apportionments. Then, using data from UK HMRC CT600 returns we go on look at which businesses benefit and to calculate the incentive effect in terms of user cost of capital, determining that the increase affords a very significant step reduction of about 30%. Finally we investigate the additional cash flow benefit that the increase might bring a company, finding it to be limited.

Note: This material was first published by Thomson Reuters (Professional) UK Limited in Andrew Harper and Li Liu, Section 7 and Schedule 1: Temporary Increase in Annual Investment Allowance, [2013] BTR, No. 4 etc. and is reproduced by agreement with the Publishers.

Keywords: corporate tax policy; accelerated depreciation; cost of capital

JEL Classification: H25; K34

Suggested Citation

Harper, Andrew and Liu, Li, Section 7 and Schedule 1: Temporary Increase in Annual Investment Allowance (2013). British Tax Review Issue 4, 2013. Available at SSRN: https://ssrn.com/abstract=3423961 or http://dx.doi.org/10.2139/ssrn.3423961

Andrew Harper (Contact Author)

New Street Chambers ( email )

2 New Street
Leicester, LE1 5NA
United Kingdom

Li Liu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
5
Abstract Views
95
PlumX Metrics