Why now is the time you should use Asset Finance to grow your business and support economic recovery

The Government has extended the £1 million annual investment allowance cap.

The extension of this was originally due to revert to £200,000 on 1 January 2021, however, businesses, including manufacturing firms, can continue to claim up to £1 million in same-year tax relief through the Annual Investment Allowance (AIA) for capital investments in plant and machinery assets until 1 January 2022.

This move is intended to boost confidence as companies look to weather the pandemic and plan for the future.

Invest for growth

Companies that do not invest in new equipment, vehicles, and machinery run the risk of being left behind by their competition. But, not all businesses can or want to sacrifice working capital to purchase assets.

If this sounds like you, then Asset Finance could be the perfect solution for you.

Asset Finance can save you money by freeing up vital funds that can be invested in other business areas to support growth, helping you accomplish your business ambitions. It’s a flexible way for almost any business to fund investment while generating cashflow and securing a more competitive edge, all of which is essential not only for business growth but also for the growth of the UK’s economy.

How Asset Finance can support growth

The Government’s Annual Investment Allowance (AIA) is an allowance designed to stimulate economic growth; incentivising companies to invest in new equipment.

AIA, which is a type of capital tax, aims to encourage businesses to invest – offering up to £200k on qualifying capital expenditure in the year of purchase, no matter the size of the organisation. You can find out more here.

Because ownership is implied from the beginning, hiring or leasing assets through Asset Finance means the allowance can be claimed as the intent to purchase is given as though it was an outright cash purchase.

If you’re a start-up business, Asset Finance allows you to buy the equipment you need to become a successful operation on a hire purchase or leasing agreement. Asset Financing enables new companies to grow while keeping monthly payments affordable and offering finance sound security.

Asset Finance can be used for any sized business to purchase or lease against fixed assets that you already own, which is held as security by the finance provider against the loan. Fixed assets include your current equipment, vehicles, technology, computers and more, but does not include any current stock.

Asset Finance V Invoice Finance

Invoice finance is a convenient way to access cash but may not provide you with the funds you need to grow your business. Unpaid invoices can be slow to recuperate, and these delays, coupled with drops in sales throughout the year, can affect your cash flow and ability to borrow money or grow using your own financial investment.

Business Growth is sometimes necessary – you may find that you can generate more sales but require additional equipment to fulfil them. If this is the case, then Invoice Finance will be limiting and won’t support your business growth at the rate that you need it to.

Asset Finance will allow you to purchase your additional equipment, fulfil sales, and achieve growth, but you do need to factor in the interest you will pay back within your purchase or hire agreement.

Both Asset Finance and Invoice Finance are forms of finance agreed faster than traditional loans. New facilities can be set up in just a few days, and you can start releasing cash flow immediately, so ultimately the choice between the two depends on the financial status of your business.

Asset Finance and Tax

Using Asset Finance to lease equipment can save you tax. Lease payments are seen as a business expense and can be offset against your profits as a method of reallocating the taxable benefit of an asset over time.

A capital allowance is given instead of depreciation for most business assets, which can be deducted from the overall corporate or income tax on a company’s profits.

In addition, VAT is payable on the rental, not the purchase price. It is also normally paid ‘up-front,’ meaning no VAT is payable on instalments.

HMRC operates three schemes that allow companies to claim capital allowances on equipment purchased for business purposes. Interest charges for these purchases can be offset against tax.

  • Standard Writing Down Allowance is available on all assets used in a business. It allows the cost price of an asset to be written off for tax purposes during its period of use. For most plant & machinery, 18% of unclaimed capital allowance can be claimed every year.
  • Annual Investment Allowance is available to all business types and covers 100% first-year allowance on plant and machinery Up to £1,000,000 in 2021. If using this scheme, AIA should be allocated to financial years to maximise tax allowance.
  • Super Deduction is for Limited companies only and covers 130% first-year allowance on new plant and machinery. There is no expenditure limit, but it is important to know that the scheme ends on 31st March 2023.

In a Nutshell

Asset Finance can be a sound financial solution at every stage of business growth. It is a flexible form of finance and has more tangible benefits than traditional bank lending.

Asset Finance can be one of the quickest forms of funding options available to a business. It is also able to provide benefits such as freeing up cash flow without needing additional security.

Why not get ahead of your competition this year and utilise the business growth potential that Asset Finance can offer you? Explore the Alpha Asset Finance website to find out more.

We can help you to grow your business and achieve your business ambitions, this year and for years to come.

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