As we come out this lockdown gradually and business activities are getting back to the new normal, the government is trying to revive the economy with various measures and do whatever it takes to save businesses from collapsing. Besides the furlough scheme and loans (Bounce Back Loan and CIBLS Loan) given to businesses, some of the measures suggested to the Chancellor championed by former Chancellor Javid are a cut in Value Added Tax; reduction in stamp duty; reduction in the cost of hiring by cutting National Insurance Contribution paid by employers.
However, little attention is drawn to the Annual Investment Allowance (AIA) which could encourage many companies to invest more. The AIA was introduced to encourage greater level of investment by companies which gives up to 100% allowance for the investment in plants and machineries to up £1,000,000 from 1 January 2019.
The AIA limit was £200,000 from 1 January 2016 to 31 December 2018 and was later increased to a £1,000,000 limit in 1 January 2019 but is expected to revert back to £200,000 from 1 January 2021. I want to see the temporary increase in this AIA to be extended for at least two more years up to 1 January 2023 and the amount increased from £1,000,000 to £2,000,000.
The implication of this will be that it will encourage many businesses to invest in plant and machinery particularly now that the economy needs to recover quickly. Investment in plant and machinery provides enduring benefits such as revenue boost and positive working capital. In addition, increasing the amount of AIA and extending the period will provide a tax cut for many corporations so that they will not have to worry about corporation tax while they are struggling to stay in business.
If the government is keen to get the economy going again and want to keep up to their new slogan of “Build! Build! Build!”; AIA extension is one of the options they should consider. I expect the Chancellor to be thinking in this direction and to include it in this Autumn budget.
Let’s wait and see.