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Finance Bill: Changes to capital allowances

Finance Bill: Changes to capital allowances

The Finance Bill includes provisions on various capital allowances changes announced in Autumn Budget 2018.

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Legislation has been published in respect of the various capital allowances measures announced in the Autumn Budget. No detailed statutory provisions regarding the new Structures and Buildings Allowance have, however, found their way into the Finance Bill. Instead the detail is expected to be included in secondary legislation which will be the subject of a forthcoming technical consultation.

The Finance Bill gives further clarity on the following four measures relating to capital allowances:

Annual Investment Allowance (AIA)
The mechanics for claiming the increased AIA during the two year period commencing 1 January 2019 have been confirmed. Tax return periods which are coterminous with the calendar year are straightforward, however detailed calculations are required for accounting periods straddling 1 January 2019 or 31 December 2020. The maximum AIA for straddling periods is firstly restricted based on a weighted average of the maximum AIA in force throughout the period. A second restriction then applies differently to the first and second straddling periods:

  • First straddling period (bridging 1 January 2019) – AIA available for the period is capped at £200,000, to the extent it pertains to expenditure incurred prior to 1 January 2019; and 
  • Second straddling period (bridging 31 December 2020) – AIA available for the period is capped at the weighted average AIA limit for the post 31 December 2020 element of the period, to the extent it pertains to expenditure incurred post 31 December 2020.

Additional calculations are to be considered if the straddling periods are longer or shorter than one year.

Taxpayers should consider the timing of capital expenditure on plant and machinery so as to benefit from the increased AIA wherever possible.

Structures and Buildings Allowance (SBA)
The drafting in respect of SBA broadly mirrors the HMRC technical note published as part of Autumn Budget 2018. A key facet, which is the subject of the ongoing HMRC SBA consultation (which closes on 31 January 2019), is how far reaching the restriction will be in respect of structures or buildings forming residential accommodation. HMRC’s technical note suggested only hotels and care homes would fall outside of the restriction, however we recommend affected taxpayers in the residential sector make individual representations to HMRC in order to best highlight the detrimental impact on the sector. We will be submitting our own response to the consultation and would be very interested in hearing readers’ comments.

Enhanced Capital Allowances (ECA)
As announced in the Budget, ECA will no longer be available in respect of expenditure incurred post 1/6 April 2020. Wherever possible, taxpayers should consider the timing of incurring ECA qualifying expenditure to benefit from this tax relief prior to the abolition of this allowance.

Special Rate Pool Writing Down Allowance
Writing down allowances available in respect of accounting periods straddling the 1/6 April 2019 change will be calculated based on a weighted average calculation of rates in force for the time periods pre/post 1/6 April 2019.

The measures announced remain broadly positive for most taxpayers, significantly, with the introduction of SBA. It is disappointing that despite taxpayers being able to benefit from this relief from 29 October 2018, we do not yet have the detailed rules that govern this tax relief.

For more information, conact Harinder Soor and Darren Barker.

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