At McDade Roberts we advise our customers on the latest legislation and budget changes. Chancellor Philip Hammond used the 2018 Autumn Budget to unveil significant changes to the capital allowances regime so we decided to explain below what has changed.
Annual Investment Allowance Temporary Increase
The majority of UK firms are able to claim a 100% Annual Investment Allowance (AIA) on the first portion of expenditure on most types of plant and machinery, excluding cars.
In the 2018 Autumn Budget, the Chancellor announced a temporary increase in the AIA, which will rise from £200,000 to £1 million. This applies to expenditure incurred from 1 January 2019 to 31 December 2020. Businesses are therefore advised to time the purchase of plant and machinery carefully in order to make full use of the increase.
However, the Association of Taxation Technicians (ATT) has expressed concerns that the temporary increase in the AIA could actually reduce the tax relief available to some firms. Why? Read on…
A business with a year end of 31 March 2021, for example, would have an effective AIA limit of £800,000, provided the business had incurred all of its qualifying expenditure for that year in the nine months to 31 December 2020. If the expenditure was instead incurred in the three months to 31 March 2021 however, the amount of AIA available would be restricted to £50,000. The ATT has proposed the introduction of an opt-out clause because of this.
Many businesses, apart from those with a 31 December year-end, will therefore have to consider the tax implications of the timing of capital expenditure which can be a complicated decision.
The Chancellor also announced a new capital allowances regime for structures and buildings. The new Structures and Buildings Allowance will apply to new non-residential structures and buildings. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis. Relief will not be available for the costs of land or dwellings.
A Complicated Issue
Capital expenditure decisions must be driven by the needs of the business, not just to maximise tax initiatives therefore overall, it is a complex decision for many business owners. If you need help and someone independent from your business to speak to, give McDade Roberts Accountants a call.