Chancellor George Osborne has increased the Annual Investment Allowance (AIA) from £25,000 to £250,000 for the next two years, in his Autumn Statement.
From 1 January 2013, small firms investing in new equipment and machinery will receive a tenfold increase in the amount they can invest tax free.
"This capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain," the chancellor said in his speech. "It is a huge boost to all those who run a business, who aspire to grow and expand and create jobs."
In live coverage of the speech
on BusinessZone, Charlie Mullins, founder of Pimlico Plumbers, said: "The chancellor is showing he understands the role businesses have to play in the recovery. AIA and corporation tax cuts are good calls."
Also reacting instantly in our live coverage, Lesley Stalker, head of tax at Robert James Partnership, said: "Increase in AIA - fantastic news. For our clients that will make a real difference to their tax bills."
Dave Chaplin, CEO and founder of ContractorCalculator, said: "By increasing the annual investment allowance tenfold and creating an SME-focussed business bank, the Autumn Statement delivers good news to entrepreneurs desperate to grow their businesses, with both additional tax-relief and a debt finance shot in the arm."
John Walker, national chairman of the Federation of Small Businesses, said: "This will boost investment which is needed to grow the economy and create jobs. This is a step in the right direction and recognition of the important role small firms will play in the recovery."
However, Phil Orford, chief executive of the Forum of Private Business, said that the AIA increase is a "tacit admission" that the decision to cut the same allowance to £25,000 this year was a wrong one.
"Given that UK businesses are currently sitting on £700bn of cash reserves, it could be argued that the earlier actions of the chancellor created a disincentive to invest through 2012, at a time when business needs confidence to create growth.
"Nevertheless, we welcome this increase and urge businesses to take advantage of it. There are big savings to be had here for firms who’ve been waiting for the right time to invest and upgrade equipment, and this kind of spending tends to wash right down the supply chain."