Manufacturers unaware of increased AIA

Posted on 9 Jan 2014 by The Manufacturer

A survey from asset finance provider Lombard has revealed less than a third of UK SME manufacturers are aware of the temporary increase to the UK Annual Investment Allowance.

Government moved to introduce a two-year increase to the UK’s Annual Investment Allowance (AIA) in the 2012 Budget announcement. Since December 2012, companies have been able to claim a full deduction of taxable profits against the first £250,000 of capital investment made in the year.

This temporary tax measure will remain in place until December 2014. It was implemented in order to give incentive for capital investment in UK businesses, thereby improving competitiveness and stimulating economic recovery.

However, a survey of more than 400 UK SMEs carried out by Lombard has revealed that less than a third of those questioned were aware of the AIA increase – just a fifth of those surveyed said they made use of the investment incentive last year while 43% of respondents said that awareness of the increased allowance would have influenced their decision to invest in 2013.

Richard Hemsley, managing director of Lombard responded to the research saying: “Investment lies at the heart of getting our economy back to running at full strength and we are here to support our customers to achieve their goals and ultimately support our country’s recovery. Capital investment remains a critical factor for UK companies to compete with other countries, particularly emerging economies where we are seeing increased focus on business investment.”

Lee Hopley, chief economist at manufacturing trade body EEF also commented. “A recovery in business investment is becoming ever more critical to balanced growth in the UK and a competitive industrial base,” she said.

“The significant increase in the AIA has been welcomed, and here we have further evidence of the impact that such a tax change can have on the decision to increase investment, particularly by SMEs.”

A recent survey by EEF showed that 60% of manufacturers are planning to invest in more UK capacity this year. Ms Hopley said companies should take advantage of the remaining period of AIA enhancement to make good on those intentions.

She added however that, in the long run, “more fundamental change is needed to ensure the UK tax system is globally competitive – not just on the rate of corporation tax – but for the capital allowances regime too.”

Speaking from the SME manufacturer community, Tony Hague, MD of Midlands-based electrical systems integrator Power Panels Electrical Systems, observed that: “The changes in AIA were communicated dreadfully by HMRC.

I’m certainly not surprised less than a third or respondents [to Lombard’s research] knew of the changes, in fact I’m surprised it was that high!

Mr Hague went on to question the validity of the tax cut as an investment incentive saying that individual company confidence was the key factor in converting investment intention into reality – not artificial tax “ploys”.

Nevertheless, Lombard’s Mr Hemsley urged all SMEs to speak to their finance advisers to find out more about how they can make the most of this temporary increase in the Annual Investment Allowance while it still lasts.