The AIA was introduced in 2008 to help small firms increase productivity and scale with large investments by enabling them to claim 100 per cent tax relief on equipment and machinery – up to the limit set for the year of expenditure.
Originally launched at £50,000, the allowance has yo-yoed from £100,000 to £250,000 to £25,000 to £500,000. As such, it was believed that the limit would plummet back to £25,000 in 2016, but the chancellor revealed during the Summer Budget that’s not going to be the case.
“Many small and medium sized businesses have benefitted from our enhanced Annual Investment Allowance. This Allowance was set at £100,000 when we came to office – it is higher now, but without action it will fall to just £25,000 at the end of the year. That would especially hit middle-sized companies in areas like manufacturing and agriculture that we want to do more to build up in Britain,” said Osborne.
“So I can confirm that the Annual Investment Allowance will not fall to £25,000 but be set at £200,000; this year and every year. A major, permanent boost to the incentives for long-term investment by small and medium sized firms in Britain.”
Earl Yardley, director at machine solutions firm Industrial Vision Systems, believes that the announcement is a positive one for the UK manufacturing sector.
“The more investment and tax breaks within this space, the more stability there is for key industries, such as pharma, medical device, and automation, which, in turn, will also enhance the performances of UK engineering firms,” he said.
“The chancellor should be applauded for fixing the annual investment allowance for capital allowances at £200,000. We have already seen a significant increase in investment made in new automated production lines and cells across the UK manufacturing base. By establishing a long term rate, this is sure to boost productivity and help leverage the UK at the forefront of the global manufacturing sector.”
Read more from our summer Budget commentary:
- George Osborne says tax dodgers have “nowhere to hide”
- George Osborne adds more detail to Northern Powerhouse plans
- Compulsory national living wage gets mixed reception
- Cut in corporation tax welcomed by British businesses
- Apprenticeship levy so firms “get back more than they put in”
- Roads Fund introduced as part of the plan to boost productivity
However, Mark Tighe, the MD of capital allowances firm Catax Solutions, isn’t so pleased about the pledge and claimed Osborne has “fallen short in his promises to support SMEs”.
“Numerous business leaders have already recommended the allowance to be set above the current level of £500,000 – but the Tories haven’t listened,” said Tighe.
“The chancellor’s apparent ‘laser-like focus’ on productivity is somewhat misguided and it is now crucial Mr Osborne reevaluates the way in which he intends to help SMEs continue to spend and grow.
“SMEs have been star performers in the UK economy in recent months and they deserve greater support, as pledged ahead of the election in May.”
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