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Capital allowances ‘too complicated’ for small businesses

Tax breaks designed to encourage businesses to invest in new equipment are overly complex and fail to boost spending, a new study suggests.

Research for the Open University has found that just 8% of firms understand the rules regarding capital allowances, while 19% rated them ‘acceptable’.

A further 31% of those surveyed said the system was ‘too complicated’ and 42% didn’t know what they were and/or left it to their advisers.

The study was conducted by the Finance & Leasing Association (FLA) as part of the Open University’s Quarterly Survey of Small Business in Britain.

Under the capital allowances system companies can write off some of their purchase of equipment against their taxable profits.

Currently, the first £100,000 of the year's investment in plant and machinery, except for cars, is allowed at 100%. However, the maximum annual investment allowance is set to fall to £25,000 with effect from April 2012.

Following the findings, Julian Rose, head of asset finance at the FLA, called on the Government to simplify the current system of capital allowances.

‘If small firms are to drive the economic recovery, they need tax investment incentives that are simple to claim,’ he said. ‘The capital allowances system is over-complicated and falls short of providing the support that UK businesses need to encourage them to invest.’