Value of tax breaks claimed by businesses for capital investment to fall 15% this year

31 January 2017

  • Annual Investment Allowance forecast to be worth £2.7bn in 2016/17

The value of tax breaks claimed by businesses for capital investment in new equipment is forecast to fall 15% this year, to £2.7 billion in 2016/17* from £3.2 billion the previous year, says Funding Options, the online business finance supermarket.

Funding Options says that the fall comes as significant cuts to the Annual Investment Allowance (AIA) take effect, which reduced the amount of expenditure that companies can claim against their corporation tax bills to £200,000 per year from January 2016 from £500,000 previously.

The scheme allows businesses making capital investments to claim a deduction of 100% of qualifying expenditure from their taxable profits in the year of purchase.

The value of the AIA peaked after the allowance was raised to its previous £500,000 level in April 2014, demonstrating its effectiveness in encouraging business investment (see graph).

Amount of AIA claimed for business investment to fall to £2.7bn this year

Graph: Amount of AIA claimed for business investment to fall to £2.7bn this year

There were fears in 2015 that the government would lower the AIA again from £200,000 to its original level of £50,000, a 90% cut. The government responded to these concerns by setting the allowance at £200,000 permanently.

Funding Options points out that this includes investments made through finance arrangements such as leasing as well as cash purchases.

Conrad Ford, CEO of Funding Options (, says:

“Although the AIA is no longer as generous as it once was, it’s still an essential means of enabling companies to green-light vital investment.”
“Businesses that need to purchase or upgrade vital equipment should make use of this year’s allowance before the end of the tax year, so that they still have their full allowance available next year for any further on-going investment requirements ahead.”
“The AIA is particularly beneficial to the technology, manufacturing, and food service sectors which are likely to need to make major, regular investments in expensive cutting edge systems or machinery – literally the tools of their trade.”
“However, it’s a real boon for all businesses in any industry to enable them to invest in their IT capability or upgrade phone or other office systems to help them run more smoothly and efficiently or purchase other necessary equipment such as trucks or vans.”

Conrad Ford adds,

“The fact that businesses don’t even have to make the investment out of available cashflow to qualify is a significant extra plus.”
“They can get the same tax breaks on capex made using alternative forms of finance such as leasing, enabling them to spread the cost and minimise the hit to their balance sheets too. This gives them maximum flexibility to structure their investment plans in the way that best suits them.”
“With bank lending to fund these sorts of major investments often in short supply, particularly for SMEs, this is essential.”

Funding Options say it is seeing more and more businesses considering alternative financing options, especially now that the Bank Referral Scheme which aims to make it easier for SMEs to obtain funding, is up and running.

Under this scheme, if a bank rejects a loan application from a small business, it will offer them a referral to one of three designated finance platforms, of which Funding Options is one, to help them find a suitable alternative source of funding.

* HMRC forecast