Advisers and taxpayers alike may have been expecting a big announcement from the Chancellor with respect to driving investment in the UK economy. The Chancellor did not disappoint but interestingly, the “big bang” measure related to enhanced relief for capital expenditure and not for an increase in R&D tax incentives as many had hoped.
The vanguard announcement, which is unique historically, is the introduction of an enhanced superdeduction equal to 130% for expenditure on certain items of plant or machinery.
This super-deduction will apply to capital expenditure on “main pool” plant and machinery incurred by companies between 1 April 2021 and 31 March 2023.
Therefore, if a company spends £1,000 on qualifying items of plant and machinery within the dedicated time period, it will be able to deduct £1,300 from taxable profits. At present, the company may be able to claim the full amount as a deduction using the Annual Investment Allowance, so in effect, the company receives additional benefit of 30% of expenditure (equivalent to a cash tax benefit of 5.7% of the original expenditure). The benefit is greater for those companies that have already used their Annual Investment Allowance as the applicable writing down allowance for these items is 18% per annum on a reducing balance basis.
There are significant points to note:
Whilst special rate pool items are excluded from the super-deduction, a temporary first-year allowance of 50% will be introduced for expenditure on these items. This provides a welcomed increase over the existing 6% reducing balance rate and will apply for the same period (up to 31 March 2023).
The following restrictions apply:
The temporary increase to the Annual Investment Allowance has also been extended to £1m for expenditure incurred up to 31 December 2021.
Unfortunately, no widescale improvements to the R&D tax incentives regimes were announced but there may be further measures announced later in 2021:
Eight new Freeport destinations in England have been announced. These areas allow for goods to be imported to GB without customs duties being applied and include the East Midlands Airport region, Liverpool City region, Thames region and Teesside region.
The Structural Buildings Allowance for expenditure on buildings or structures within these regions will be increased to 10% (currently 3% per annum) and Enhanced Capital Allowances of 100% will be available for expenditure on plant and machinery within these regions.
There are also additional stamp duty land tax reliefs for these areas.
The devolved administrations of Wales, Scotland and Northern Ireland are also expected to announce their own policies for freeports within these regions.
If you have any queries on the topics covered above, please contact Mathew Scott, partner, KPMG in Belfast.