With no new capital incentives to aide investment and growth, it is a back-to-basics approach to claim optimisation which has become increasingly complex over the years with 'Allowances Statements', 'Fixed Value' and 'Mandatory Pooling Requirements' and the most recent, and relatively short-lived, 'Super Deduction'.
Yesterday's Autumn Statement provided nothing much beyond existing allowances to drive growth and encourage businesses to make differential capital investment in the years ahead. This means if you have a significant project looming you might wish to consider carefully the planning of expenditure to optimise the availability of the Super Deduction which is due to end on 31 March 2023.
The Potential Reforms to the UK’s Capital Allowances Regime published earlier this year when Rishi Sunak was Chancellor also appear to have fizzled out (for now) and there is nothing on the horizon for a replacement to the Enhanced Capital Allowances rules benefiting certain water, waste and energy efficient assets (abolished April 2020).
The Investment Zones programme announced in Septembers ‘mini-budget’ may proceed but in a much more limited way “The government will refocus the Investment Zones programme. The government will use this programme to catalyse a limited number of the highest potential knowledge-intensive growth clusters, including through leveraging local research strengths The Department for Levelling Up, Housing and Communities will work closely with mayors, devolved administrations, local authorities, businesses and other local partners to consider how best to identify and support these clusters, driving growth while maintaining high environmental standards, with the first clusters to be announced in the coming months. The existing expressions of interest will therefore not be taken forward. The government is grateful to local authorities for their work to develop proposals.”
First Year Allowance for EV Charge Points
The government will legislate in Spring Finance Bill 2023 to extend the 100% First Year Allowance for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes. This will ensure that the tax system continues to incentivise business investment in charging infrastructure.
Annual Investment Allowances
The new Chancellor has confirmed that he will stick with his predecessor’s statement to keep the current AIA limit at £1 million from 1 April 2023. Since the AIA can be used for most plant and machinery (‘P&M’) in the ‘special rate’ pool as well as ‘main rate’ pool it is an extremely valuable cash flow benefit to almost all UK business (the current limit enables an estimated 99% of UK business to offset their entire P&M investment in Year 1).
Businesses covers individuals, a partnership of which all the members are individuals, or a company. A single company is entitled to only one AIA - even if it carries on more than one qualifying activity. For example, a company that carries on a trade as well as a property business may have two qualifying activities, but only one AIA, although that AIA may be shared between the two activities in any way the company sees fit. Further details on the restrictions relating to companies, related parties and groups under common control can be found here.
The Super Deduction was introduced from 1 April 2021 to 31 March 2023 and is available to companies (not individuals) who invest in certain types of plant and machinery with two rates of relief that are dependent on ‘main rate’ pool (130%) or ‘special rate’ pool (50% then 6% reducing balance basis) classification.
They can provide companies with a valuable cash flow benefit but there are restrictions (notably cars and leased P&M that is not ‘background P&M’ in a building’). They can also be available for qualifying P&M acquired on hire purchase. The P&M must be ‘new and unused’. For example, if a property is held solely as trading stock of a property developer, it will be treated as unused by the developer. If the property is put to use by the developer for some other purpose, then it will cease to be unused.
There are additional disposal value rules for the Super Deduction which require Seller’s to track the qualifying expenditure upon which an allowance has been claimed and can require a proportionate clawback of the enhanced relief depending on the disposal values involved. Crucially, there are no changes to the existing disposal value mechanisms or legislation surrounding the use of a s198 CAA 2001 election.
There is a significant practical difficulty in Super Deduction claims for larger businesses that have had to track large volumes of purchase orders with expenditure after 1 April 2021 (the commencement date) but with underlying contracts pre-3 March 2021. Accounting systems rarely track such details, and a very fact-specific analysis is almost always needed.
Another looming challenge is going to be the identification of claims on qualifying Super Deduction expenditure for projects that straddle 31 March 2023 (and the availability of enhanced relief). These will almost certainly require additional analysis and the timing of expenditure point is covered in one of my earlier articles on ‘Work in Progress and Capital Allowances’.
Full details on the Autumn Statement with supporting documents can be found here.
If you have any questions, on the Autumn Statement or any other capital allowances or real estate tax matter I will be delighted to hear from you.