The government confirmed in November’s Autumn Statement that the level of the Annual Investment Allowance, which allows businesses to deduct the full value of a qualifying item from their profits before paying tax, will be permanently increased to £1,000,000 from 1 April 2023. It has been set at this level since 1 January 2019 as a temporary measure.

But the ATT says the government should amend the draft legislation to ensure businesses with accounting periods that straddle the 1 April 2023 date are still entitled to the full allowance across any 12-month period.

Currently, those with accounting periods running both before and after April 2023 will only be eligible for a pro-rata portion of the allowance in each period. For the period before 31 March 2023, businesses can “borrow” the pro-rata proportion from after 1 April 2023, creating the full £1m available for qualifying expenditure incurred before 31 March 2023.

However, this does not apply in reverse, with businesses unable to “borrow” any unused allowance from before 1 April 2023. This means a business with a calendar year accounting period ending on 31 December 2023 may incur all its qualifying expenditure after 1 April 2023, and not realise that its maximum allowance would only be £750,000 (nine-twelfths of £1m).

In an even more extreme example, for a business with a 30 June 2023 year-end, the limit on expenditure incurred after 31 March 2023 would be just £250,000 (three-twelfths of £1m), even if it had incurred no qualifying expenditure at all before 1 April 2023.

Jon Stride, vice chair of ATT’s Technical Steering Group, said: “The absence of any change in the annual investment allowance limit between 31 March and 1 April 2023 might have been expected to avoid the strange arithmetic intricacies associated with the ending of a temporary increase.

“However, the legislation includes requirements concerning the second straddling period after 1 April 2023 which we worry would disproportionately affect some businesses. It is also likely to come as a surprise to many taxpayers given that there has been no effective change in the overall limit.

“Amending legislation to remove this requirement would create an unbroken entitlement to the full £1,000,000 for the period after 1 April 2023 and eliminate any need for an unexpectedly restricted time-apportioned allowance.”