Despite a temporary two-year boost in the Annual Investment Allowance (AIA), research from Close Brothers Asset Finance has found that UK SMEs have no firm plans to take advantage of the increase.

From 1 January 2019 to 31 December 2020 an increase in the AIA has been introduced by the government. This is to enable faster tax relief for plant and machinery investments between £200,000 and £1m, with the aim of helping businesses to invest and grow. Introduced in 2008, it is an allowance for tools and equipment meaning a business can write off 100% of qualifying capital expenditure against taxable profits for the same period.

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A key finding of the survey of 900 SME owners across the UK established that well over half (58%) of SMEs aren’t aware that the Government had made the increase to the AIA, while only a minority of companies (13%) are planning to significantly increase investment in 2019 as a result of the rise.

Neil Davies, chief executive officer of Close Brothers Asset Finance, said: “The AIA provides significantly faster tax relief for plant and machinery and is a great way for firms to invest in the tools and equipment that could transform their business. However, it’s clear that more needs to be done to get the message out to business owners because the AIA was always intended as an economic stimulus by the Government.

“A knock-on effect of this lack of knowledge is that company owners aren’t taking advantage of the increase to invest in their business.”

AIA is available for most assets purchased by a business, including machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. It does not apply to cars.

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Announced in October’s 2018 budget by Chancellor Philip Hammond, the AIA has the potential to boost demand for hire purchase facilities on equipment, although it does not directly apply to leases.