Capital Allowances (Mini-Budget) Update



Today, there are two capital allowances announcements: -


  1. The £1 million Annual Investment Allowance that was due to reduce to £200,000 on 31 March 2023 is to be ‘permanently’ kept at £1 million.

  2. Investment Zones which will benefit from lower taxes (businesses rates relief, NI savings and accelerated capital allowances) alongside more favourable planning rules for development.


Annual Investment Allowances


Given the success and relative simplicity of the Annual Investment Allowance it makes a lot of sense to keep this at the upper level and helpfully permanently; however, what that means in practice given the fragility of political leaders (and Chancellor’s) in UK politics just now is anyone’s guess.


Crucially, there were no announcements on HM Treasury’s policy paper consultation on potential reforms to the UK Capital Allowances Regime which closed in July. So, at the moment, the 130% and 50% Super Deductions for plant and machinery are still scheduled for expiry on 31 March 2023.


Investment Zones


These new Investment Zones will be in addition to Freeports.


A critical criterion when assessing the likely impact of any government announcement is the Tax Impact Assessments (TIAs) that usually accompany them. These give a forecast cost to HM Treasury and are a good indicator of the intended significance of the measure. Today, no such TIAs or policy documents have been published to assess the impacts other than a brief factsheet.


This matters because other measures like Enhanced Capital Allowances in Enterprise Zones which had similar incentives were so tightly constructed to only have a nominal effect on the local economies and cost to HM Treasury. In fact, for those experienced in tax it is not unusual to hear of a headline grabbing incentive only to find that the detail does not match the hype - we hope this will not be the case here.


At the moment the government is in discussions with 38 local authorities to establish investment zones in England and intends to work closely with the devolved administrations and local partners to deliver this opportunity to drive local growth in Scotland, Wales and Northern Ireland.


We await the details with interest and will provide a more in-depth analysis once this information is published.


If you have any question on capital allowances, or a related tax matter, we will be delighted to hear from you.