A new study has found that more than half (58 per cent) of SMEs are not aware of a temporary two-year increase in the annual investment allowance (AIA), which could help them secure £1 million in funding.

Last year, the Government increased the AIA from £200,000 to £1 million from 1 January 2019 to 31 December 2020 to assist businesses with plant and machinery investments.

AIA allows businesses to write off 100 per cent of qualifying capital expenditure against taxable profits for the same period up to the annual limit and yet many businesses are not aware of the opportunity currently on offer.

The research from Close Brothers Asset Finance also found that only 13 per cent of companies had intentions to increase investment significantly in 2019 because of the rise, meaning that around nine out of 10 businesses had no specific plans to make use of the increase in AIA.

It is thought that the complexity of the rules surrounding AIA may have been off-putting for some businesses.

Will Silsby, Technical Officer at the Association of Taxation Technicians, told Accountancy Daily: “AIA in the final three months of the chargeable period to 31 March 2021 is restricted to the time-apportioned fraction of the normal £200,000 limit, so just £50,000.

“For the first straddling period, the calculation is logical. The AIA cap for expenditure in the first part of the chargeable period (the months up to 31 December 2018) has to be the normal £200,000 limit regardless of the number of months in that part.

“There is currently no provision to allow any element of under-spend in the pre-January 2021 months to be carried over into the post-December 2020 months.”

Link: Majority of SMEs unaware of £1m machinery tax break