INVEST now or risk losing hundreds of thousands of pounds in tax relief on plant and equipment, SMEs have been warned.
BNP Paribas Leasing Solutions, provider of lease and hire purchase finance to growing businesses in the UK, warns that tax relief will be drastically cut if companies don’t act within the next few weeks.
It says that small organisations need to place major orders for investments in capital equipment by the summer because eligibility for the current Annual Investment Allowance (AIA) of £500,000 will depend on equipment being on site and ready for use by 31 December. Acting now will allow for lead times of several months on large and complex orders such as customised machinery.
BNP Paribas estimates that delaying and missing the deadline for investments could cost a business a saving of up £389,500 from its next tax bill. From 1 January, the value of the AIA is expected to fall by 95% to £25,000.
We are ready and waiting to provide the finance needed to help businesses commit to that decision in time
It also points out that businesses that want to take full advantage of the current tax benefits available for major capital investments and still keep cash flow healthy can choose leasing rather than outright purchase. They will be able to claim the AIA for investments as long as the item is in use on their premises by the end of December, and will not need to have made all the payments by that date.
Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions says: “Delaying decision making on major investments could prove to be very expensive.
“We are ready and waiting to provide the finance needed to help businesses commit to that decision in time; investing in their growth and that of the real economy across the UK.
“Major capital investments such as a complete IT hardware and systems refit, a combine harvester for a farm, or large-scale excavation equipment for a construction business cannot just be bought off the shelf, and will easily exceed the £25,000 limit that the AIA is expected to fall to.
“If they are planning a major investment, businesses will need to get talking to suppliers now, and will generally need to have placed an order by the summer in order to ensure that their investment qualifies for the £500,000 AIA relief that is available now.”
BNP Paribas Leasing Solutions points out that the AIA has played a crucial role in encouraging businesses to make very significant capital investments. Previous reductions in the limit for the allowance have had a major impact on the amount of relief claimed.
After the AIA was cut by 75% from £100,000 to £25,000 for the 2012/13 tax year, the value of relief claimed fell by 21% from £7.2Bn to £5.7Bn.
Watkins added: “Even a couple of years ago businesses were clearly using the AIA to help fund major investments, not just day-to-day capital spending – which is why its use fell so sharply when the limit was cut.
“Now that the economic recovery is taking root and business confidence is returning, we would expect an even larger number of businesses to be looking to the AIA to transform their prospects.”
