Budget insights for Business Tax and Capital Allowances

By James Geary

James Geary

Aside from the company tax changes, this Budget contained quite a few headline changes to the Capital Allowances system, not all of which featured in the speech itself.

New Structural Buildings Allowance

A completely new allowance is to be introduced with immediate effect, called the Structural Buildings Allowance (SBA), available on new non-residential structures and buildings, where eligible construction or improvement costs are incurred. The allowance will be a flat rate of 2% over a 50 year period.  Although this was introduced as a new relief, as far as we can see from our initial review, this appears to be virtually identical to the old Industrial Buildings Allowances introduced in the 1960s and abolished in 2011!

Capital Allowances for Special Rate Pool will reduce

The SBA will be funded by a cut in the annual allowance rate for “special rate” expenditure from 8% to 6% (this pool includes integral features such as lighting, heating and air conditioning, as well as higher emission cars and “long life” assets). To give this a context, with the 8% rate it took businesses 28 years to get tax relief on 90% of the cost of an asset, and with a 6% rate it will take 38 years.

Annual Investment Allowance for plant and machinery is to temporarily increase

The biggest announcement on Capital Allowances relates to the Annual Investment Allowance (AIA). Two years after announcing that there would be a “permanent” rate of £200,000, we are going to have another temporary increase, this time to £1 million, from January 2019 to December 2020. It is unfortunate that the transitional rules for accounting periods straddling the change dates are the same as before, as these rules are highly complex and costly to get wrong.  Businesses are advised to plan the timing of machinery purchases very carefully over the next few months to ensure they can maximise relief.

Employment Allowance is retained but only for smaller businesses

Finally for business tax, we expected changes in relation to the Employment Allowance (which gives businesses a £3,000 discount from Employer National Insurance contributions) and indeed there was a change.  Fortunately this only affects larger businesses, as the allowance will no longer be available to businesses with an employer NIC bill of at least £100,000 annually.  This will take effect in April 2020.

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