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Capital allowances loophole closed

The government has bought forward the closure of a loophole that allowed businesses to accelerate capital allowances claims for plant and machinery and obtain advantageous early tax relief.

The change was announced on 12 August by Economic Secretary to the Treasury Justine Greening and took effect immediately.

SMEs will now be able to raise equity finance up to €5 million (doubled from €2.5 million) before having to produce a prospectus. The government says that removing the obligation on a significant number of small companies to issue a prospectus will save UK SMEs around £12 million per year.

The closure of the loophole, which was originally proposed for April 2012, was brought forward because the government had become aware that an avoidance scheme was being promoted that took advantage of the loophole.

Justine Greening said: "By ending this loophole we will preserve important revenue while maintaining a fair system of capital allowances to support business investment."

The capital allowances regime will undergo major reform from April 2012. The annual investment allowance, which offers tax relief at 100 per cent on qualifying expenditure in the year of purchase, will be reduced to £25,000, while the rates of writing down allowances are also set to fall.

LINK: Capital allowances guidance