Budget comment: no clarity on future size of Annual Investment Allowance

Budget comment: no clarity on future size of Annual Investment Allowance

Budget comment: no clarity on future size of Annual Investment Allowance

· SMEs must act in a few weeks to maximise tax relief on major capital investments

SMEs have just a few weeks left to plan major investments in machinery and equipment after today’s Budget failed to provide clarity on the issue of the future size of the Annual Investment Allowance, warns BNP Paribas Leasing Solutions, one of the biggest providers of lease and hire purchase finance in the UK.

BNP Paribas says that businesses need to place major orders for investments in capital equipment by the summer, as eligibility for the current Annual Investment Allowance (AIA) of £500,000 will depend on equipment being on site and ready for use by 31 December. Acting now will allow for lead times of several months on large and complex orders such as customised machinery.

BNP Paribas estimates that delaying and missing the December 31 deadline for investments could be expensive. Had the Chancellor continued with the previous proposal to cut the AIA by 95% to £25,000, missing the December deadline would cost a business a saving of up £389,500 from its next tax bill.*

The new size of the Annual Investment Allowance is not now expected to be confirmed until the Autumn Statement, too late for many purchases that would need to be ordered far earlier in order to fall into this tax year.

BNP Paribas Leasing Solutions says that many small businesses had hoped that the Government would use today’s Budget to keep the AIA at its current higher level indefinitely. It points out that the AIA has played a crucial role in encouraging businesses to make very significant capital investments. Previous reductions in the limit for the Annual Investment Allowance have had a major impact on the amount of relief claimed.

After the AIA was cut by 75% from £100,000 to £25,000 for the 2012/13 tax year, the value of relief claimed fell by 21% from £7.2billion to £5.7 billion.

Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions says: “The AIA proved its worth in encouraging business investment. While it is promising that the Chancellor says an allowance of £25,000 is too low, businesses would prefer greater clarity for next year.”

“Many businesses would prefer the allowance to be kept at a six figure sum; they are feeling more confident now and want the ability to make absolutely transformative investments.”

“We are concerned that a significant reduction in this allowance would have a negative impact on investment.”

BNP Paribas Leasing Solutions points out that businesses that want to take full advantage of the current tax benefits available for major capital investments and still keep cash flow healthy can choose leasing rather than outright purchase. They will be able to claim the Annual Investment Allowance for investments as long as the item is in use on their premises by the end of December, and will not need to have made all the payments by that date.

Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions adds: “Delaying decision making on major investments could prove to be very expensive.”

“We are ready and waiting to provide the finance needed to help businesses commit to that decision in time; investing in their growth and that of the real economy across the UK.”

“Major capital investments such as a complete IT hardware and systems refit, a combine harvester for a farm, or large-scale excavation equipment for a construction business cannot just be bought off the shelf.”

“If they are planning a major investment, businesses will need to get talking to suppliers now, and will generally need to have placed an order by the summer in order to ensure that their investment qualifies for the £500,000 Annual Investment Allowance relief that is available in this tax year.”

Claiming the Annual Investment Allowance

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