Tax relief to get firms spending

Companies will enjoy a tenfold increase in the amount they can wipe off their tax bills for qualifying investments for the next two years, temporarily reversing a controversial move in the 2010 Budget, reports The Telegraph.

Businesses will be able to write off up to £250,000 each year of investment in areas such as factory expansion, machinery and office equipment after George Osborne reversed the policy on so called “capital allowances”.

Despite his promise to support a “march of the makers” as he delivered the Budget two years ago, the Chancellor simultaneously cut capital allowances, with the annual investment limit on which relief was granted slashed from £100,000 to £25,000.

However, complaints from companies and bodies including the British Chambers of Commerce and manufacturers’ group the EEF inspired a change of heart in the Autumn Statement.

The Government is hoping that the decision will boost the economy by inspiring small and medium-sized companies – which are sitting on a combined cash pile of £120bn according to the British Bankers’ Association – to start investing.

John Walker, national chairman of the Federation of Small Businesses, welcomed the move, saying it will “boost investment which is needed to grow the economy and create jobs. This is a step in the right direction and recognition of the important role small firms will play in the recovery”.

The relief will allow many profitable SMEs to write off the full cost of investments. Mr Osborne said it will bring 99pc of all business investments in Britain in line for tax relief, encouraging companies to reinvest their profits.
The EEF praised the decision as a “positive pro-growth announcement”.

Lee Hopley, the organisation’s chief economist, said: “This move starts to provide the foundations of a strategy that is serious about supporting more globally focused companies choosing to invest and grow in the UK.

“But with the strong rebound in business investment still forecast to be a few years out, the Chancellor cannot afford to ease up on efforts to build confidence about the UK as a place to invest and grow.”

However, Francesca Lagerberg, head of tax at accountants Grant Thornton, questioned how much impact the increased relief will have. “The reality is that very few businesses ever need this level of capital expenditure and for small businesses in particular it is a pipe dream. Therefore, although enticing on paper, in reality it is likely to be of limited use,” she said.
Andrew Gotch, of the Chartered Institute of Taxation, said: “This is a very generous increase that will be warmly welcomed by many small businesses.

“However we note it is only a temporary increase. Business would really welcome some stability in this area. In recent years the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back down to £25,000. Businesses like certainty above everything and the chopping and changing has been a problem.”

The Government also pledged an extra £120m to help large global manufacturers to develop supply chains and local production in the UK.

The money is being delivered through the Advanced Manufacturing Supply Chain Initiative.