A tax break designed to spur on investment in British manufacturing has been extended by a year to help firms in the face of the pandemic, the Treasury has announced.

The temporary £1 million cap on tax relief on capital investments in plant and machinery will now be extended until January 1 2022.

The annual investment allowance tax break was due to end on January 1, when the cap was set to revert back to £200,000.

The Treasury said the move would “boost confidence as companies look to weather the pandemic and plan for the future”.

Jesse Norman, financial secretary to the Treasury, said: “It is vital that we support business through the difficult months ahead.

“Extending the Annual Investment Allowance’s £1 million cap will give businesses the confidence they need to invest into next year, helping them to grow whilst benefitting the wider economy too.”

Manufacturing has been hit hard by the pandemic and official figures on Thursday showed the sector is still 8.1% below levels seen at the end of last year, despite a rebound in the third quarter.

The tax break extension comes amid a raft of proposals announced in a tax policy update by the Treasury.

Further tax policy updates

Updates include new measures to crack down on promoters of tax avoidance schemes, as well as new draft legislation for a plastic packaging tax.

The tax avoidance clampdown will see the Treasury consult next spring on plans including tougher sanctions and additional powers for HM Revenue & Customs (HMRC).

It wants to ensure tax avoidance scheme promoters face “quick and significant financial consequences” so that they do not continue to profit amid an HMRC investigation.

HMRC will also be handed extra powers to shut down promoters that continue to promote schemes and stop them setting up similar businesses under the plans.

Draft legislation was also published on a new plastic packaging tax, which was first announced in the 2018 Budget and is due to come into effect in April 2022.

It will see a levy of £200 charged per tonne of plastic packaging that contains less than 30% recycled plastic and will come into effect from April 2022.

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