Interest Rates and Incentives to Invest
The Bank of England has confirmed that base rate remains unchanged for the time being. However, with inflation heading to its highest level in more than a decade, the surprise decision comes with a warning – rates will have to be increased in 2022.
Irrespective of their decision, all our funding panel are advising that money market rates are increasing, so the cost of borrowing is already on the rise. That said, for those old enough to remember double-digit base rates, the cost of borrowing is still low and attractive terms are available for the time being. If you are considering buying assets or re-structuring your business finances, then it may be wise to consider this now rather than wait for rates to increase.
At the recent Budget and spending review, there were several positive announcements for SME businesses aimed at encouraging growth and investment as we head towards 2022
The Government’s Recovery Loan Scheme (RLS) that was due to expire at the end of December 2021 has been extended until 30th June 2022. RLS provides flexible access to a range of business funding with little or zero security required. We have access to a diverse range of lenders who can support RLS asset finance, asset refinance, business loans, and invoice finance top-ups. Call us now to enquire.
Annual Investment Allowances (AIA) were due to reduce from £1m back to £200,000 at the end of December 2021. The £1m limit has now been extended until the end of March 2023. This is great news for anyone buying plant, machinery, equipment, and commercial vehicles. In effect, any assets up to £1m can be fully offset against tax in the year purchased. So, if you buy an asset for £500,000 you can fully offset this against taxable profits, which at the current underlying rate is 19%. This would therefore save you £95,000.
The Super Deduction allowance, which was introduced in March 2021 budget, currently allows only ‘new’ asset purchase to be fully offset, and this also runs until the end of March 2023. Important – this is for limited companies only.
The AIA allows any ‘used assets’ to be fully offset in the first year and provides non – limited businesses with full offset relief against tax up to £1m per annum.
Combining the tax incentives with current low-interest rates is the perfect climate to consider making those asset purchase decisions. Rates are on the move in 2022 so act now to avoid increasing finance costs.
Call us now on 0161 633 2548 if you would like to talk to one of PMD’s business finance experts