As we have been saying since the beginning of the year, the decrease in Annual Investment Allowance was too deep a cut. If the Chancellor wanted to stimulate growth, the reduction that he threatened and then implemented last March in the Budget was a step in the wrong direction.
Finally, this has now been reversed, and then some! The investment allowance is now £250,000 – yes, ten times the amount to which he had reduced it in March.
It means that businesses can make investment in capital equipment up to £250,000 and claim all of the cost against business profits for that year. This means that for businesses who need to take such an investment, it is now very tax efficient for them to do so. Up until now, tax relief only on £25,000 was given in the first year, the rest of the tax relief trailed off over the lifetime of the asset. For many businesses, new plant cost in excess of £25,000, so only partial up-front relief was given.
This takes effect from 1 January.
However, take advice on the timing of the expenditure, if this is something you are now contemplating. As the new rules are implemented in January, then there will be a diluting effect in this first year, as only one quarter of the £250,000 is available in this tax year. Delaying expenditure until the new tax year in April may mean that the full £250,000 becomes available.
Many businesses will want to make this investment, but may not have the liquid funds. However, there are other options available, and the Banks and other lenders will be gearing themselves up for some action with this new announcement. With the right project plan, the right type of funding and speaking to the right person, we can create an opportunity for many businesses which before the Autumn statement did not exist.