Member Article

SMEs and the Annual Investment Allowance increase

**Back in 2012, the Chancellor announced a tenfold increase in the Annual Investment Allowance on plant and machinery, from £25,000 to £250,000. As of January 1, businesses can enjoy 100% relief over a two-year period. So, what does this actually mean for SMEs?

Bdaily spoke to Ian Issac, managing director of business and commercial at RBS subsidiary Lombard, on how the capital allowance might work.**

“It’s great news, it’s an open invitation for business to invest and make genuine cash savings. I think it’s a really positive sign that should stimulate investment in SMEs,” says Ian.

“We’ve already seen a lot of interest from customers who are trying to determine when the optimum time might be to make their investment. There’s some complexities in when you could make the expenditure within the two year window, depending on when your year ends.

“A lot of businesses who were planning to buy in December 2012 heard about the announcement and deferred their purchases, causing a slight hiatus or delay. Since then, we’ve seen businesses perk up and think about their investment plans over the next year.”

The two year window for investment runs until December next year and provides opportunity to make a maximum of £250,000 investment in each year.

If the businesses’ tax or financial year ends on March 31 they can only receive tax relief on a proportion of that £250,000.

Ian says: “We’d encourage businesses to think carefully about when the best time to purchase pieces of equipment is. Of course, it needs to fit within their own business thinking. It’s no good bringing it online too late to meet their demand.

“Lots of businesses have the calendar year end as their year, in which case its a clean run for the allowance.”

The asset finance industry, and others such as EEF in the engineering industry, have been campaigning for some time around the need for further capital allowances, which had fallen to 25% and it were seen as a disincentive to invest in plant and machinery.

Ian adds: “I think this is the single biggest gesture the Government could make for businesses looking to grow and invest. Whether businesses are trying to grow; manage risks better; or just become more efficient, having modern and resilient equipment is essential. It’s something that will benefit them in the pocket straight away.”

Despite this recent stimulus, the team at Lombard already noted a 15% year-on-year increase in investment, spurred by the likes of automotive supply chain businesses.

Ian suggests businesses who were feeling under-confident about purchases in 2012 will get a push by the allowance increase.

“My advice would be to consider the appropriate funding vehicle. It’s all very well having a £250,000 allowance. But if they haven’t got the cash to fund it…,” continues Ian.

For those businesses supplying plant and machinery into the UK market, there is a potential double stimulus.

The allowance could stimulate demand from their customers and they will also benefit should they be investing in their own equipment.

This was posted in Bdaily's Members' News section by Tom Keighley .