The chancellor has opened his red box and delivered his final budget before the general election.
Typically the final budget in a parliament is targeted at winning the undecided votes and the focus of this budget is no different with policies that will prove popular with the public such as the first £1000 of savings interest being tax free (£500 for higher rate tax payers), an increase in the personal tax allowance to £10,800 and further relaxation of the pension rules. These policies come into effect from next year, i.e. after the election so in some cases will depend on who is in power…
But what about business? George Osbourne stated that the UK was ‘walking tall again’ and this is in no small part down to the efforts of the businesses that have continued to trade, thrive and provide income to the exchequer through the term of this coalition. So what were the rewards – a cut in corporation tax to 20% from April, and National Insurance abolished for employing under 21s. Both undoubtedly welcome measures for SMEs but there remain uncertainty over the Annual Investment Allowance (AIA).
Introduced in April 2008 it allows most businesses, regardless of their size, to claim tax relief on capital investments. In January 2013, the Government temporarily increased the AIA limit from £25,000 to £250,000. A second temporary rise followed in April 2014, when the limit was raised to its current level, £500,000. That cap is currently due to return to £25,000 on 1st of January 2016. The Chancellor confirmed AIA would reduce but did not confirm the reduction. That decision won’t come until the Autumn Statement in early December, which means that businesses face uncertainty about the level of tax-efficient investment they will be able to make.
Companies wishing to make sure they benefit from the increase in AIA should think about accelerating capex plans and using loan or hire purchase finance structures to enable them to benefit now, whilst paying the cost of the projects over time.
However, if firms finance equipment using a lease structure, the tax position remains unchanged, with all payments being fully deductible against operating profits.
Please get in touch and we will be happy to discuss options and arrange the right finance for your needs.