UK manufacturers react to the Annual Investment Allowance extension

Posted on 19 Nov 2020 by Tom Lane

Businesses, including manufacturing firms, can continue to claim up to £1 million in same-year tax relief through the Annual Investment Allowance (AIA) for capital investments in plant and machinery assets until 1 January 2022. The extension of the temporary £1 million cap was originally due to revert to £200,000 on 1 January 2021.

This move is intended to boost confidence as companies look to weather the pandemic and plan for the future.

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.”

National Investment Bank for Britain - Puzzle with the national flag of great britain and british pound on a world map background - image courtesy of Depositphotos. annual-investment-allowance
image courtesy of Depositphot

The news comes on the back of a recent survey which found only 3% of SME manufacturers in England think that Brexit will have a positive impact on their business. The same study found that 62% of respondents are still trading below pre-pandemic levels, whilst more than a quarter feel it will take between one and five years to get back to normal.

When asked about the financial assistance they require now, the top answer from 43% of respondents was grants towards capital investment. This shows an appetite to spend, in order to improve productivity and achieve more sales, but indicates that further support is still needed to make this happen.

Nick Golding - annual-investment-allowance
Nick Golding, Managing Director of SWMAS (South West Manufacturing Advisory Service)

We spoke with Nick Golding, Managing Director of SWMAS (South West Manufacturing Advisory Service) who produced the study to get his reaction. Nick said: “All additional support is welcomed for manufacturing so an extension to the Annual Investment Allowance (AIA) that supports and encourages investment has to be a ‘positive’.

“In our recent Manufacturing Barometer, 38% of firms suggested that they are planning to increase investment in capital investment in the next six months, so the extension of the AIA could actually ramp up these figures further.

“SME manufacturers are resilient and they know that they have to continually improve or they will get left behind by a global market that wants parts/products quicker, faster and often cheaper than ever before.”

He concluded: “The issue management teams have is balancing the risk, especially with 62% of them reporting reduced levels of demand due to Covid-19. Any Government incentive that takes some of that financial risk away could be the difference between them pressing the button on investment or not.”

Mark Venables, Managing Director of Alloy Wire International (AWI), annual-investment-allowance
Mark Venables, Managing Director of Alloy Wire International (AWI),

However, Mark Venables, Managing Director of Alloy Wire International (AWI), one of the UK’s leading manufacturers of round, flat and profile wire was not sure if this extension would help his firm, saying: “I’m not sure the extension to the allowance will affect us massively, but we will certainly take it into account when discussing future investment and as part of ongoing discussions around shaping our five-year business plan.”

“Whichever way we look at it, there has to be a commitment from the Government to create a stimulus that encourages economic growth and, unfortunately, this has been sadly lacking from political parties for many years, as they simply don’t get the importance of manufacturing and the income we generate for this country.

“In my opinion, the Government should also forget about raising Capital Gains and Entrepreneur’s Relief if they really want to encourage businesses owners and shareholders to invest and pull the country out of the current situation.”

“We need a low tax stimulus to get the economy going and that will create the income tax required to pay for all of the recent spending to survive Covid-19. All these companies struggling from the impact of the pandemic are not making money, so tax revenue is bound to be down. Over to the government to find the levers needed to get this going again.”