In the Summer Budget 2015 , UK Chancellor of the Exchequer George Osborne set out a plan for Britain for the next five years.
"The British economy I report on today is fundamentally stronger than it was five years ago. We’re growing faster than any other major advanced economy. Our businesses have created two million more jobs. Living standards are rising strongly. Our long term economic plan is working. But the greatest mistake this country could make would be to think all our problems are solved," said Osborne.
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As part of the new plan, the government decided not to reduce the Annual Investment Allowance (AIA) to £25,000 as it previously planned, but set it at £200,000.
AIA is a type of capital tax allowance, which offers tax relief at 100% on qualifying expenditure in the year of purchase.
AIA will remain at its current level of £500,000, a figure it reached result of temporary measures in April 2014, until the 31 December 2015.
Osborne said: "Many small and medium sized businesses have benefitted from our enhanced Annual Investment Allowance. This Allowance was set at £100,000 when we came to office – it is higher now, but without action it will fall to just £25,000 at the end of the year.
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By GlobalDataThat would especially hit middle-sized companies in areas like manufacturing and agriculture that we want to do more to build up in Britain. So I can confirm that the Annual Investment Allowance will not fall to £25,000 but be set at £200,000; this year and every year."
The Chancellor said that the new AIA level was the highest permanent amount set by a UK government, and that it would be a major boost to the incentives for long-term investment by SMEs.
Mike Hartley, managing director at Praetura Asset Finance, said: "It really was a Budget for business, with the chancellor giving a nod to the enormous contributions made by UK SMEs in helping get the country out of the red and into the black.
"Ensuring continued investment, particularly amongst manufacturing and agriculture sectors, is crucial to helping firms get on and grow and confirmation that the AIA be set to £200,000, rather than reverting to £25,000, which would have been simply unsustainable, is a major step in the right direction.
"AIA has changed four times since 2008, but has fast become a major incentive in encouraging firms to utilise asset finance to purchase new equipment and take advantage of the 100 per cent tax relief. And the fact that alternative lending has risen fivefold in the last decade, is testament to SMEs increased appetite for growth."
On the other hand, UK country manager for BNP Paribas Leasing Solutions Tristan Watkins said that there was disappointment among SMEs that the AIA was not set higher and that the new level could negatively impact business investment growth.
Watkins said: "While the Chancellor has clearly listened to the warnings that the original plan of cutting the AIA to £25,000 was not wise, there will still be some disappointment that the new level has not been set higher."
"In the longer term, the certainty of having £200,000 set as the permanent level will be welcome. However, overall levels of business investment may not increase as fast as they could."
BNP Paribas also advised SMEs to place major orders for investments in capital equipment in the next couple of weeks, as eligibility for the current AIA will depend on equipment being on site and ready for use by 31 December.
Fleet
Commenting on the Summer Budget 2015, LeasePlan UK managing director Matthew Dyer, said: "For the fleet industry, there was the expected and welcome freeze on fuel duty, some encouraging news on low emission vehicles, and the fact that no one will pay more tax for a car that they already own."
Dyer said that the decision to freeze fuel duty was well received by both public and private sectors. "Whilst crude oil prices have meant that prices at the pumps have fallen to their lowest this decade, fuel costs remain a significant overhead for businesses and public sector bodies that operate vehicle fleets," he said.
The government announced that it will introduce a new VED banding system for cars registered on or after 1 April 2017. First year rates (FYRs) will vary according to the carbon dioxide emissions of the vehicle.
"Although the Vehicle Excise Duty announcement does address emissions directly, the Chancellor could have gone further to promote an even larger uptake of environmentally friendly vehicles, especially as the popularity of low emission vehicles has continued to accelerate, with registrations up 70.9% on last year (SMMT),"said Dyer.
Alphabet’s chief executive officer Richard Schooling said that the measures could positively affect the market for greener business vehicles.
Schooling said: "The introduction of first year rates based on CO2 emissions for Vehicle Excise Duty only strengthens the incentive to choose the cleanest and most sustainable vehicles, which is key in shaping the future of business mobility. It’s also good to see the Government documenting the requirements for employers’ payrolling cars as of 2017, to hopefully simplify the reporting of tax and benefits for millions of employees and employers."
