Exciting Updates for Capital Allowances - September 23rd Mini-Budget
Today’s budget certainly had some significant moments for capital allowances. Capital investment in the UK continues to become more attractive. Here are the key changes:
£1m Annual Investment Allowances Made Permanent
Currently a company, partnership, or individual sole trader may obtain a 100% first year allowances for the first £1m of spend on qualifying plant & machinery with the Annual Investment Allowances (AIA). This relief has been around for a number of years at a variety of rates. The base rate of the relief was £200k, and the current level of £1m has historically been described as a temporary increase, scheduled to reduce again in April 2023. Today’s announcement that the AIA will permanently remain at £1m is excellent news for businesses looking to invest in the coming years.
While the Super Deduction looks like it will still end and be sorely missed in April 2023 (barring any further budget announcements), it’s good to know that the current level of AIA will remain.
Corporation Tax Rate and the Super Deduction
It was no surprise to hear the government is scrapping the planned increase in corporation tax and retaining the 19% rate. This of course has huge implications across all aspects of a company’s business, but from a capital allowances perspective there is one major take away; The Super Deduction is even more attractive and should not be missed.
For main pool expenditure the Super Deduction offers a 130% first year allowance, scaling up the tax relief gained from 19p on the £1 with AIA, to 25p on the £1. It’s no coincidence that this matches the relief that would’ve been obtained using AIA at the higher 25% tax rate, meaning companies saved as much investing with the Super Deduction as they did waiting until the tax rate increased. In lieu of the CT rate increase, the Super Deduction now represents a time limited benefit, offering relief at a higher rate that will be obtainable after April 2023, when the Super Deduction ends.
Get in touch with cal@yes.tax to ensure that your business is maximising its Super Deduction claim, before the window 1closes.
Investment Zones
The newly announced investment zones describe a variety of benefits including accelerated planning applications, business rate relief, NIC relief, SDLT relief, and of course, several capital allowances enhancements.
The new zones will offer a 100% Enhanced Capital Allowance for companies on plant & machinery. Although further details are still to come, this effectively represents an unlimited AIA within Investment Zones.
More significantly, Investment Zones also offer enhanced Structures & Buildings Allowances (SBAs) of 20% per annum. In the normal course, SBAs offer 3% annual deductions on structural spend (which doesn’t qualify for any other enhanced relief like AIA or Super Deduction), meaning a 33 year period before all the costs are deducted. At 20% this wait is now only 5 years and represents a very significant acceleration of allowances.
Crucially there is no mention of whether the Capital Gains mechanics will change. Currently SBAs obtained are deducted from the base cost of the asset in the Capital Gains calculation, effectively clawing back all relief. If the same applies to Investment Zones, the enhanced SBAs may not be quite as appealing as they appear, depending on the future intentions for the assets.
Details on where these investment zones are is expected from the government soon. Look out for YesTax updates in the near future.
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