Welcome news for businesses looking to reinvest in new plant!

Welcome news for businesses looking to reinvest in new plant!

On Thursday 12 November, the Government announced an extension to the temporary increase of the Annual Investment Allowance (AIA) for a further 12 months. The AIA provides SMEs and business of all shapes and sizes 100% tax relief on qualifying capital expenditure, up to a fixed annual limit. The AIA was due to revert back to £200,000 from 1 January 2021, but the timely and very welcome news last Thursday is that the £1 million temporary cap will remain in place until 31 December 2021.

The written statement released by the Government made the following comments - the announcement:

• Responds to the needs of business, giving enhanced tax relief on plant and machinery expenditure;
• Provides businesses with upfront support during continuing COVID-related uncertainty;
• Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.

As a result of the announcement, financial pressures will undoubtedly be lifted from some SMEs and businesses that have a need to significantly reinvest in new plant, office equipment, IT, manufacturing equipment, etc. either to help promote growth or just to maintain their asset base and income streams. Especially where businesses were looking to bring forward planned capital expenditure in line with the expected reduction in the AIA at the end of year to help mitigate their tax liabilities.

The 12 month extension should allow those and all businesses the time and flexibility to budget and plan for significant CAPEX, without the need to unnecessarily stretch their financial resources or rush through plant purchases just to save taxes.

Commenting further on the extension, Financial Secretary to the Treasury Jesse Norman said: “It is vital that we support business through the difficult months ahead. Extending the Annual Investment Allowance’s £1 million cap will give businesses the confidence they need to invest into next year, helping them to grow whilst benefitting the wider economy too.”

As said, very welcome news for SMEs and businesses during this difficult time.

For further help and advice, whether tax advisory, financial modelling, forecasting, or banking and finance, please contact your usual Azets contact or get in touch with our expert team today.