The Annual Investment Allowance (AIA) for plant and machinery will be increased from £200,000 to a maximum of £1m, Chancellor Philip Hammond announced as part of Monday’s national UK Budget.
The move greatly raises the tax deductible for businesses that invest in assets for production, and has the potential to boost demand for hire purchase facilities on equipment, albeit it does not apply to leases.
Businesses are able to claim the AIA in respect of their expenditure on both general and ‘special rate’ plant and machinery, with the main exception being expenditure on cars. The AIA is a 100% upfront allowance that applies to qualifying expenditure up to a specified annual limit.
The move was welcomed by the SME financing sector. Carl D’Ammassa, group managing director for business finance at Aldermore, said: “It goes without saying that we welcome the increase in the annual investment allowance from £200,000 to £1m for two years. This will go a long way to stimulate SME business investment and therefore improve their long-term prospects.
“As we head into 2019, it is vital that businesses and the government work hand in hand to ensure SMEs are the driving force behind future economic growth and it’s great that the Chancellor has come up trumps.”
Business rates relief of £900m was also included in the Budget, part of a £1.5bn package which saw positive reception by SME lenders. The relief will apply to small retailers with a business premises with a rateable value of £51,000 or less.
While most measures announced by Hammond were welcome by SME funders, some industry executives criticised the Budget for not going far enough. Angus Dent, chief executive officer of P2P lending platform ArchOver, said: “The Chancellor’s reduction of business rates is music to the ears of SMEs around the country. But on its own this isn’t enough to cure a decade of difficulty for UK SMEs.
“Once Brexit negotiations are on the straight and narrow, the government needs to demonstrate that it believes in the future of British business. The best way to prove this would be to announce a mini-budget focused on advancing SMEs in a still-struggling economy.
“The Chancellor desperately needs to convince the rest of the world that the UK is still a competitive place to do business – or he risks putting the future of UK businesses in jeopardy.”