The Association for Accounting Technicians (ATT) has urged the Government to review draft legislation permanently increasing the annual investment allowance (AIA).

AIA allows businesses to deduct the full value of qualifying items from their profits before paying tax. In 2019, the AIA rose to £1 million as a temporary measure and will remain at this level on a permanent basis from 1 April 2023.

However, the ATT says that "strange arithmetic intricacies" resulting from the legislation could "catch out" taxpayers, causing them to accidentally exceed their allowance.

Currently, businesses with accounting periods running before or after April 2023 will only be able to claim a pro-rata portion of the allowance each period.

Those with an accounting period before 31 March 2023 can top up their AIA to £1m by borrowing part of their future allowance from after 1 April 2023. However, businesses will be unable to "borrow" any unused allowance from before 1 April 2023.

According to the ATT's Jon Stride, this will "disproportionately" affect some businesses. For example, those with accounting periods ending on 31 December 2023 will have a maximum allowance of only £750,000 as a result.

Furthermore, this will likely come as a "surprise" to many taxpayers since there has been "no effective change in the overall limit".

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