Temporary increase in the annual investment allowance
The annual investment allowance (AIA) provides a 100% allowance on qualifying expenditure, subject to an annual limit. Budget 2018 announced a temporary two-year increase in this limit from £200,000 to £1,000,000 from 1 January 2019.
As with previous changes to the limit, transitional rules will apply to businesses with chargeable periods spanning 1 January 2019 (when the limit is increased) and 1 January 2021 (when the limit reverts to £200,000).
For periods spanning 1 January 2019, no more than £200,000 of the actual expenditure in the part of the period falling prior to 1 January 2019 will qualify for the AIA. The maximum AIA for the whole period will be based on a time apportionment of the period for which the allowance is £200,000 and the period for which the allowance is £1,000,000. Therefore, for a period from 1 July 2018 to 30 June 2019, the maximum AIA would be £600,000 ((6/12 x £200,000) + (6/12 x £1,000,000)).
For periods spanning 1 January 2021, no more than the proportionate amount of the £200,000 AIA relating to the period falling after 1 January 2021 will qualify for the AIA. Therefore, if a period runs from 1 April 2020 to 31 March 2021, the maximum AIA qualifying expenditure in the period from 1 January 2021 to 31 March 2021 will be£50,000 (3/12 x £200,000). This proportionate restriction when the limit falls has been the subject of much lobbying in the past, so it is interesting that this rule is being adopted again. The maximum AIA for the whole period will be based on a time apportionment of the period for which the allowance is £1,000,000 and the period for which the allowance returns to £200,000. Therefore, for a period from 1 April 2020 to 31 March 2021, the maximum AIA would be £800,000 ((9/12 x £1,000,000) + (3/12 x £200,000)).
More detailed transitional rules will apply to:
- businesses subject to income tax with chargeable periods spanning 1 January 2019;
- Groups and businesses under common control.
Further details are expected in the Finance Bill to be published on 7 November 2018.
Clarification of capital allowances for costs of altering land
The legislation will be amended to clarify that the costs of altering land to install assets that do not qualify for capital allowances (i.e. buildings and structures excluded by the Capital Allowances Act 2001 (CAA 2001), s. 21 and 22) are ineligible for capital allowances. This change will apply to claims made on or after 29 October 2018, but the law will be treated as always having had effect.
Although not specifically mentioned in the budget documents, this measure appears to be a reaction to the First-tier Tribunal decision in SSE Generation Ltd  TC 06618 where the tribunal judge decided that land excavation costs for the purpose of creating an asset that functions as plant in common law were allowable, despite the fact that the structures fell within CAA 2001, s.22. The way in which the measure is being introduced will prevent potential claimants from making claims following a review of historic expenditure in relation to assets still held.
This measure is also linked to a new capital allowance for structures and buildings costs (see below).
Capital allowances for structures and buildings
This new allowance will apply to qualifying expenditure incurred on or after 29 October 2018, although the detail will be subject to consultation. To allow for this consultation, it is proposed that a power to introduce the new allowance (to be known as the structures and buildings allowance (SBA)) will be contained in the Finance Bill 2018–19 and the detailed legislation will be included in a Statutory Instrument to be introduced after Royal Assent to Finance Bill 2018–19.
The proposed features of the allowance are:
- relief will be given at a 2% flat rate over a 50-year period;
- relief will be available for new commercial structures and buildings, including costs for new conversions or renovations;
- relief will be available for UK and overseas structures and buildings, where the business is within the charge to UK tax;
- relief will be limited to the costs of physically constructing the structure or building, including costs of demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence;
- relief will be available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29 October 2018;
- it will only be possible to make claims from when a structure or building first comes into use;
- relief will not be available for land costs or rights over land;
- relief will not be available for costs of obtaining planning permission;
- the claimant must have an interest in the land on which the structure or building is constructed;
- relief will not be available for dwelling houses, nor any part of a building used as a dwelling where the remainder of the building is commercial;
- the sale of the asset will not result in a balancing adjustment (the purchaser will take over the remainder of the allowances written down over the remainder of the 50-year period);
- expenditure on integral features and fittings of a structure or building that are currently allowable as expenditure on plant and machinery will continue to qualify for writing down allowances for plant and machinery including the AIA, up to its annual limit;
- SBA expenditure will not qualify for the AIA;
- Where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure will qualify for a separate 2% relief over the next 50 years.
Ending enhanced allowances for energy and water efficient plant and machinery
First-year allowances at a rate of 100% are currently available for expenditure on certain energy efficient and environmentally beneficial technologies and products. These are often known as enhanced capital allowances (ECAs). Loss-making companies can currently claim a first-year tax credit instead.
The tax credit was due to expire on 31 March 2023 (having been extended by Finance Act 2018). However, both the allowance and the credit will come to an end on 31 March 2020 for companies and 5 April 2020 for unincorporated businesses.
In the meantime, the lists of qualifying technologies will be amended by statutory instrument to take effect in 2019.
First-year allowance for electric charge-points
The current 100% first-year allowance for electric vehicle charging points was due to expire on 31 March 2019 for corporation tax and 5 April 2019 for income tax. The end date will be extended by a further four years to 31 March 2023 for corporation tax and 5 April 2023 for income tax.
Reduction of rate of special writing down allowance
A special rate of capital allowances applies to:
- thermal insulation of buildings;
- integral features;
- long life asset expenditure;
- cars (excluding main rate cars (first registered before 1 March 2001, cars with low CO2 emissions, electrically-propelled cars));
- provision of cushion gas;
- solar panels.
The rate will reduce from 8% to 6% from 1 April 2019 for corporation tax and 6 April 2019 for income tax.
Other measures affecting businesses
Details of the announcements relating to business rates can be found in the Property tax section.
Details of the announcements relating to profit fragmentation can be found in the Avoidance, evasion and “unfair outcomes” tax section.
Changes affecting businesses within the charge to corporation tax
Details of the announcements applying to businesses within the charge to corporation tax can be found in the Corporation tax section.
This blog has been taken from an article by Croner Taxwise