Farming businesses have just days left to plan major investments in machinery and equipment after today’s Budget cut the Annual Investment Allowance from current £500,000 to £200,000, warns BNP Paribas Leasing Solutions, one of the biggest providers of lease and hire purchase finance in the UK.
BNP Paribas says that businesses need to place major orders for investments in capital equipment in the next couple of weeks, as 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 Leasing Solutions says that many small businesses had hoped that the Government would use today’s Budget to keep the AIA at its current higher level indefinitely. It 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 Annual Investment 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 £7.2billion to £5.7 billion.
Tristan Watkins, UK country manager for BNP Paribas Leasing Solutions says: “While the Chancellor has clearly listened to the warnings that the original plan of cutting the AIA to £25,000 was not wise, there will still be some disappointment that the new level has not been set higher.”
“Farming businesses will have to act fast if they want to take advantage of the current year’s allowances. Major investments like large or customised machinery will have to be ordered now in order to be ready for use by the deadline at the end of December.”
“In the longer term, the certainty of having £200,000 set as the permanent level will be welcome. However, overall levels of investment may not increase as fast as they could.”
BNP Paribas Leasing Solutions 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 Annual Investment Allowance 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.
