Encouragement to Reinvest Up Fivefold
If you’ve pored over this year’s Budget, you probably already know the annual investment allowance will be raising from £200,000 to £1 million for a temporary term of two years in January 2019.
This should be welcomed as a huge boost to businesses which can be more confident to invest in the equipment and infrastructure they need, to remain competitive and relevant within their market sector.
This is a great move to promote reinvestment within SMEs which can use the allowance to purchase plant and equipment and then write off 100% against taxable profits. Purchases which qualify can cover anything from tools, machinery and tech hardware as well as some software. Whilst potentially challenging economic times often make businesses feel cautious to reinvest, it’s actually a great time to get ahead of equally nervous competitors who may make the mistake of stalling their progress.
The recent increase is intended to encourage businesses to invest in their own success pre-Brexit and is something that the Chamber of Commerce has requested for some time. There has been a recent decline in investment, thought to be driven by uncertainty concerning the economy, but businesses who are sensible will jump on this opportunity in order to thrive within a potentially challenging economic landscape. The decision should come as particularly welcome news for businesses which need a mass reinvestment in costly new equipment or infrastructure and have been holding out. If ever there was a sensible time to do it, it’s now.
Brexit, but also the tech evolution, will potentially bring about a change in how some businesses operate and, if any are thinking of diversifying or slightly altering their value proposition, now is definitely the time to look more deeply into their options and get their ducks in a row regarding any expenditure covered by the allowance.
Since this is only for an initial two-year period, businesses should be thinking strategically about what it makes sense to purchase now, but also what they may need longer-term to future proof their business before the temporary allowance is reduced.
As with any silver lining, there are clouds to look out for and, in this case, that’s simply making sure that any purchases and relevant accounting periods fit with the two-year timeframe. Allowances on purchases which span, but don’t fit entirely within the period, will be calculated on a percentage basis, so business will need to keep their eye on the ball to benefit as much as possible to take advantage of the optimal tax allowances.
