AIA a ‘short term measure’, says BDO

Accountancy firm BDO has responded to the HM Treasury’s latest announcement that it is extending the £1m temporary cap on Annual Investment Allowance (AIA), stating it is yet another “short term measure” when the manufacturing industry is in need of a “comprehensive” government strategy.

Last week, the Treasury announced that the £1m tax break to “stimulate investment in UK manufacturing” and to support business confidence, was to be extended. The extension of the temporary £1m cap was originally due to revert to £200,000 on 1 January 2021.

However,  businesses including manufacturing firms can now continue to claim up to £1 million in same-year tax relief through AIA for capital investments in plant and machinery assets until 1 January 2022. 

According to government officials the “move is intended to boost confidence as companies look to weather the pandemic and plan for the future.”

Steve Watts, a partner at BDO said that many manufacturers have gone into “survival mode” in 2020 amid Covid-19 and Brexit uncertainty, and have had to “defer investments” in plant and machinery assets.

He said: “Our most recent survey conducted with Make UK revealed a worrying decline in investment intentions among manufacturers, which does not bode well for an industry seeking to boost its productivity and compete in the global market.

“The one year extension to the Annual Investment Allowance cap of £1m to 1 January 2022 is therefore hugely welcome and is aimed at encouraging investment in plant and machinery during these uncertain times.”

He added: “However, this is yet another short term measure when the industry is crying out for a comprehensive government strategy which provides greater certainty and allows for longer term investment planning.”