Budget 2020 – Capital Allowances Summary
Updated: Jul 5
If your business is thinking about investing in zero or low emission cars – 2020 could be the year for you with higher emission criteria coming in April 2021 for 100% first year allowances (FYA) and 18% writing down allowances (WDA).
A brief summary on the main capital allowances points in today’s budget is below.
Increase structures and buildings allowance rate to 3%
This measure (which was trailed last year) will increase the existing structures and buildings capital allowance for all qualifying expenditure incurred on structures and buildings from 2% to 3%. The rate change will be effective from 1 April 2020 for the purposes of Corporation Tax and 6 April 2020 for the purposes of Income Tax. The draft legislation also introduces some technical changes which will take effect from 11 March 2020 and more details can be found here.
Extend enhanced capital allowances in Enterprise zones
This measure ensures that the 100% FYA will remain available for expenditure incurred in
relation to all areas, whenever designated, until at least 31 March 2021.
Enhanced first year allowances (FYA) for investment in new plant or machinery within designated assisted areas within Enterprise Zones were introduced in 2012 and were initially available for investment over a 5-year period but this was later extended to 8 years. The period commences from when the area is treated as designated.
By 31 March 2020, 8 years will have elapsed since the introduction of these enhanced first year allowances. The government has announced at Budget March 2020 that these capital allowances will remain available for expenditure incurred in relation to all areas, whenever designated, until at least 31 March 2021. Further details can be found here.
Extend first year allowance (FYA) on zero emission cars and raise eligibility criteria
Legislation will be introduced to extend the 100% FYA for low CO2 emission cars, zero-emission goods vehicles and equipment for gas refuelling stations by 4 years from April 2021.
Legislation will be introduced to reduce the CO2 emission thresholds from April 2021, which determine the rate of capital allowances available through which the capital expenditure for business cars can be written down. The thresholds will be reduced from 50g/km to 0g/km for the purpose of the FYA for low CO2 emission cars and from 110g/km to 50g/km for the purpose of WDAs for business cars.
This will mean that business cars acquired from April 2021 with CO2 emissions of 0g/km will be eligible for the FYA (100%) while those business cars with CO2 emissions not exceeding 50g/km will be eligible for WDAs at the main rate (18%) while such cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the special rate (6%). The new 50g/km threshold will also apply for determining the lease rental restriction for costs of hiring business cars for more than 45 consecutive days. The legislation will have effect from 1 April 2021 and further details can be found here.
Annual Investment Allowance
This was temporarily increased from £200,000 to £1,000,000 from 1 January 2019 to 31 December 2020. The Budget was silent on what the Annual Investment Allowance will be on 1 January 2021 onwards so business should make the full use of their entitlement and plan accordingly.
If you have any questions, please do not hesitate to contact us.