Manufacturers aren’t taking advantage of the Annual Investment Allowance

A new survey has found that many manufacturing firms don't have plans to take advantage of the increase of the Annual Investment Allowance.

Budget Annual Investment Allowance Finance Money Cash Growth - image courtesy of Depositphotos.
The AIA helps manufacturers to invest in new tools – image courtesy of Depositphotos.

Manufacturers must invest in their future, and this means spending money on new technology and machinery.

The annual investment allowance (AIA) is an allowance that enables a business to write off the cost of items like machinery in full, against profits in the year of purchase.

It means firms can get faster tax relief for plant investments. It makes buying new tools more cost-effective and gives the UK the opportunity to be more competitive.

It was announced in the Autumn Budget that AIA would temporarily increase from £200,000 to £1m, from January 2019 to the start of 2021.

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However, a new survey has found that many manufacturing firms do not have plans to take advantage of the increase of the Annual Investment Allowance.

The report by the Manufacturing Technology Association (MTA) and Close Brothers Asset Finance has found that despite the raised AIA, SME manufacturing firms are not changing their investment plans.

Additionally, the survey found that only 42% of engineering and manufacturing firms were even aware that the government had made an increase.

Firms must spend money on machinery to keep competitive - image courtesy of Depositphotos.
Firms must spend money on machinery to keep competitive – image courtesy of Depositphotos.

Under half of companies (40% overall, 45% in manufacturing) are planning to increase investment in 2019 as a result of the rise.

Although this is a good proportion, only 16% of manufacturers were planning a significant increase in investment, with 25% saying it would only be slightly higher than their original intentions.

Is £1m enough?

The increase is five-fold, but that doesn’t mean the AIA was high enough in the first place.

Previous analysis showed that further increasing AIA to £5m would see business investment rise by up to 4.1%, according to research conducted by Cebr on behalf of accountancy and business advisory firm BDO LLP.

If it increased to £5m this could be a strong incentive for manufacturing firms – particularly smaller companies – to make the machinery investment they need to.

But, if awareness is the main issue, there is no point in increasing it further and a different strategy is needed.

“The increase to the Annual Investment Allowance is a great opportunity for UK manufacturing and engineering firms to invest in new equipment and embrace new technologies that could transform their businesses,” said James Selka, CEO of the MTA.

“More needs to be done to get the message out there to invest and more support is needed to help stimulate these purchases.”