Businesses sit on cash as AIA ‘deadline’ approaches

UK businesses are waiting for the right moment to start investing, says a leading accountancy body.

The Institute of Chartered Accountants in England and Wales (ICAEW) surveyed 500 of its members working within businesses and found that 62 per cent had a cash surplus this year, with 69 per cent expecting the same next year. In nearly a quarter of cases (24 per cent), businesses were sitting on 20 per cent or more of their annual turnover.

The research, published on 8 April, also revealed that more than two-thirds (70 per cent) of respondents said increased confidence in their business prospects would encourage them to invest while 52 per cent wanted to have long-term assurance about the UK economy. Issues including the outcome of the general election, issues in the Eurozone and their experiences during the financial crisis were adding to their uncertainty.

ICAEW director of business Stephen Ibbotson said businesses were “getting their houses in order” and waiting for the right moment to invest but added: “We don’t want to see firms just battening down the hatches which could stop our recovery in its tracks.”

He urged the new government to take swift action on the annual investment allowance (AIA), which was increased in the 2014 Budget to £500,000 until the end of 2015. The allowance – which enables businesses to invest in plant and machinery and deduct the cost from taxable profits – had previously been increased from £25,000 to £250,000 for a two-year period starting on 1 January 2013.

In the March 2015 Budget, Chancellor George Osborne said that the Autumn Statement – usually in December – would be a better time to address future levels of the AIA.

Mr Ibbotson said: “The next government should make it a priority to confirm the new rate of the annual investment allowance. Businesses plan long-term and waiting until December’s Autumn Statement isn’t quick enough. This will provide our growing firms with the confidence and impetus they need to take themselves and our economy to the next level.”

Mike Randall, chief executive of Close Brothers Asset Finance, which specialises in funding options to support asset purchases, said businesses should be thinking now about major capital investments, ahead of a potential reduction in the AIA later this year.

He said: “I would like to urge businesses to consider the impact of an increased annual investment allowance now as it could revert to a lower level come 2016. Depending on the timing of the investment, the temporary increase in AIA means that many businesses are able to bring forward the tax relief on their asset purchases.”

Link: Annual investment allowance guidance