After a number of years where the capital allowances regime has been subject to very little investment, the Government has set out a comprehensive package of measures that should be valued by business as a step forward. This includes:
- Annual Investment Allowance (AIA) – for two years only and with effect from 1 January 2019 the AIA will increase from £200,000 to £1,000,000. This will apply to all sizes of business but will provide a huge benefit to Small and Medium Sized Enterprises (SMEs) where they will get tax relief on plant or machinery in year one up to £1 million, effectively accelerating the timing of tax relief;
- Structures and Building Allowances (SBA) – the introduction of a two percent allowance on construction expenditure of new non-residential structures and buildings. This measure comes into effect for all contracts entered into on or after 29 October 2018. When the Office for Tax Simplification (OTS) was considering moving to an accounts based regime the lack of tax relief under the capital allowance regime on building was a constant discussion point with business. Structures and buildings will include, hotels, care homes, offices, retail and wholesale premises, walls, bridges, tunnels, factories and warehouses. There will be no balancing allowances or charges on disposal (although the Capital Gains Tax (CGT) base costs could be impacted) and future owners will be able to continue to claim the annual two percent allowance based on the original cost for the balance of the 50 year life;
- Enhanced Capital Allowances (ECA) – The Government has surprisingly announced the abolition of the ECA (including the first year tax credit) with effect from April 2020 for energy and water efficient assets. First Year Allowances (FYAs) will be available until March 2021 for electric charge points;
- Special Rate Writing Down Allowance – with effect from April 2019 the rate of relief for assets that qualify for special rate relief is reduced from eight percent to six percent. This slowing down of the rate of relief has partly been announced to fund SBA. Special rate assets mainly focus on assets found in buildings such as air-conditioning, lighting, lifts, cold water and solar shading. Special rate expenditure also includes assets that are classified as Long Life Assets under Chapter 10, Part 2 - Capital Allowances Act 2001; and
- Costs of altering land for installing plant – what appears to be a response to the recent SSE Generation Limited vs HMRC first-tier tribunal case, HMRC will be clarifying by amendment to the statutory provisions the meaning of the word ‘plant’. Specifically this is focused on the interaction between sections 21, 22 and 23 of the Capital Allowances Act 2001.
This is a comprehensive package of capital allowances measures for SME and large business. Overall a positive step forward that business should, on the whole, welcome.