The UK Chancellor’s decision to increase the Annual Investment Allowance (AIA) from £25,000 to £250,000 in his Autumn Statement has received a lukewarm reception from the leasing industry.
The Finance & Leasing Association (FLA) pointed out that while a previous rise to £100,000 had caused a "temporary boost" to investment before it was cut in April 2012, the government claimed then that 95% of businesses would be "unaffected" by the rise.
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Julian Rose, head of Asset Finance at the FLA said that although some asset finance deals will qualify for the AIA, such as leases with bargain purchase options and long funding leases, businesses would "need to be making fairly substantial taxable profits" and "fairly substantial investments" to benefit.
"Today’s change may, therefore, lead to a shift in the mix of asset finance products," he added.
"Vital encouragement"
Independent finance provider Syscap has called for the new AIA limit to remain permanently raised, with chief executive Philip White commending the chancellor for recognising that "a more generous Annual Investment Allowance to encourage SMEs to invest in machinery and technology is vital to getting British industry going again."
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By GlobalDataHe said: "For many businesses two years is a relatively short period of time to plan and carry out a major investment", adding: "Knowing that a generous investment allowance will still be there in three or four years’ time will make it easier for businesses to make the decision to go ahead."
Clive Lewis, head of ICAEW enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW), was more positive, and said the increase will benefit the supply chain as well as the companies directly.
Osborne said in his address to Parliament the capital allowance would cover the total annual investment undertaken by 99% of all the business in Britain.
He added: "It is a huge boost to all those who run a business, who aspire to grow and expand and create jobs."
Business Bank
The FLA also highlighted the Chancellor’s mention of the proposed Government Business Bank although Rose said he had expected more detail on how the bank would operate.
He added, however, he was confident, on the back of recent discussions with Ministers from the Treasury and the Department for Business, that the Government was considering including asset finance in the development of the Business Bank. Rose said the FLA members were already getting involved in the Business Finance Partnership, a separate credit stimulus programme, further details of which are due to be announced later this month.
Rose also pointed to the addition of a further £350m to the Regional Growth Fund and the simplification of income tax for unincorporated businesses. Details of the scheme have not been made public but Rose hopes to see businesses get the option to offset their finance lease rentals against tax, rather than having to capitalise and depreciate equipment.
