In a sector like timber that has seen increasing global competition and rapid capacity improving technological advances, investment in the latest equipment is essential for businesses that don’t want to be left behind.
The industry held up well in the downturn and now, as we are seeing a return to stability in other sectors, timber companies have an increasingly valuable contribution to make to the recovery. But this will require ongoing investment to maintain momentum in productivity and ensure that domestic producers can take on overseas competition. There are, however, various funding options available to them to support this investment.
One is asset finance, which has been a funding source that has continued to support SMEs through the recession and offers flexibility in terms of accessibility. And businesses that have used it have found it helps to protect cash – that fundamental business requirement. Asset finance offers a range of solutions to help meet specific business needs. It could take the form of an operating lease, or perhaps a hire purchase agreement.
There are benefits to each of these, but an additional benefit of opting for hire purchase is that it enables businesses to benefit from the Annual Investment Allowance (AIA), which has been increased from £25,000 to £250,000 until December 31, 2014. This applied to a range of capital equipment purchased means that "AIA qualifying expenditure" up to this total in the period will receive a 100% allowance against taxable profits.
Timber sector hit hard
The timber trade was particularly hard hit when the AIA was reduced from £100,000 to £25,000 in 2012 as many essential items of equipment in the sector cost in excess of £250,000. So the new threshold is highly significant and we’d encourage businesses to consult their financial advisers on how to capitalise now, as time is running out.
At Lombard some customers have arranged for us to sit down with their accountants to plan the timing of purchases, particularly when they are close to the end of their tax year. At this stage, no-one knows whether the chancellor will decrease, increase or maintain the status quo with the current AIA level, although we expect to get further clarity in his Autumn Statement. But with little more than 12 months left of the present arrangement, and given that the tax that can be offset is based on a company’s tax year, there is a need to think ahead. We’re recommending clients with ongoing investment requirements to plan intended acquisitions as soon as possible to gain optimum benefit.
Businesses, of course, may also need to build in time for the sign-off of capital purchases and to secure the necessary funding. Furthermore, if they’re buying equipment that needs to be made to order, this also has to be factored in.
Don’t delay decisions
While not a timber industry supplier, Jock Mckie, sales and marketing manager at forestry equipment manufacturer John Deere, makes the point clearly. He said it works to a three-month lead time for bespoke specification orders, and technology providers to other sectors operate to similar or even longer-term schedules.
"So we’re encouraging customers not to delay decisions," he said. "There’s much to gain from claiming the increased AIA, and much to lose by leaving it too late."
By linking asset finance with the increased AIA, companies can simultaneously save tax and, with their resulting improved technology, secure their competitiveness and growth aspirations for the future.
