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Capital allowances will ‘benefit relatively few’ firms

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The increase in capital allowances announced in the Budget is unlikely to help large numbers of smaller firms, according to two trade and business organisations.

The Forum of Private Business (FPB) and the Finance and Leasing Association (FLA) have said that the recent doubling of capital allowances to 40 per cent will bring few extra advantages to many firms that are struggling with their finances.

Matt Goodman, the FPB’s policy representative, commented: “As with the other measures marketed as ‘business friendly’ in the Budget, doubling capital allowances to 40 per cent will benefit relatively few of the small businesses that are in genuine need of support.

“We needed a sustained strategy improve finance, protect employers as well as their staff, reduce costs and stimulate the economy.”

The FLA has argued that the Budget’s extension of capital allowances will only help businesses investing more than £50,000 and which have strong taxable profits.

However, it estimated that just 15,000 to 45,000 of the UK’s 4.7 million businesses are likely to make a large capital investment and to have high taxable profits in the coming year.

Instead, the FLA wants to see a temporary extension of enhanced (100 per cent) capital allowances from the current maximum of £50,000 so that more small businesses could benefit.

Stephen Sklaroff, the FLA’s director general, urged the government to do more to help small businesses gain access to alternative finance in order to qualify for tax incentives such as enhanced capital allowances.

Mr Sklaroff said: “Last year, our members provided 750,000 SMEs with £15 billion of essential business equipment ranging from delivery vans to photocopiers. If we are to maintain this support during the recession, government help for the lending markets needs to extend beyond traditional bank loans to asset finance.

“And the Budget will help only a tiny fraction of UK SMEs unless the Government moves quickly to allow asset finance companies to channel capital allowances to SMEs.”