Annual Investment Allowance increase - what does it mean for businesses

Following the Chancellor’s recent Budget Statement, Alan Sibley, Asset Finance Manager at Premier Asset Finance, looks at the increase in the Annual Investment Allowance, and the likely effects on business.

The Annual Investment Allowance (AIA) is an allowance that provides 100% tax relief on assets qualifying as plant and machinery, subject to an annual maximum, meaning that a company can deduct the cost of the investment from taxable profits and pay less tax.

For the last 2 ½ years the AIA has been at £200,000, benefitting many smaller businesses whose annual capital expenditure is below £200,000.  The increase to £1m should benefit an additional 30,000 medium and larger companies in that they will be able to offset the whole cost of any capital expenditure against taxable profit. As long as they are making a profit this could lead to a saving of many thousands of pounds.

The AIA covers expenditure on all plant, machinery, commercial vehicles, office equipment, IT and other items which are moveable, identifiable and are not part of the property. The AIA does not cover petrol or diesel cars or any property costs.

The equipment can be on finance but not on a rental agreement where title never passes to the customer.

Lack of investment will hold back economic growth which will not only affect our standards of living but will also affect tax revenue for the Government.

The Government is clearly sending out a signal that it wants to encourage investment. This is much needed as UK productivity is already well below that of many of our competitors; if we don’t invest, then the UK will fall further behind at a time when we need to become more competitive.

Premier Asset Finance are one of the leading providers of asset finance products to UK business – for more information on their services contact Alan Sibley.

Talbots Law’s Business Services Team deal with any and all legal issues involved within running a business, from commercial property transactions to employment disputes, and everything in between.  Call us now on 0800 118 1500 to find out how we can help you.