Capital Allowances Update – What next?

Given economic uncertainty surrounding Brexit and inbound investment, it has never been more important to ensure your tax reliefs are being maximised at each available opportunity.

Businesses rely on the capital allowances regime as their form of obtaining relief for their capital expenditure. In the Autumn 2018 budget the annual investment allowance (AIA) was temporarily increased to £1 million, the structures and buildings allowance (SBA) was introduced and the government announced the scrappage of the Enhanced Capital Allowances (ECA) regime. All of these have significant implications for clients of all sectors, the one which will most significantly feel the impact is manufacturing.

Increase in the AIA

The government announced a temporary increase in the AIA from £200,000 to £1 million in the Autumn 2018 budget lasting until 31 December 2020 after which it will revert to £200,000. Given current uncertainty surrounding the future longevity of the increase, if your business is planning a significant capital project it is best to discuss this with your advisor and carry out the project sooner rather than later. It may be that following this year’s general election, the new government opt to extend the increase to further encourage growth in British industry.

From a manufacturing perspective, the increased AIA is something which is very much welcomed and has accelerated relief for numerous businesses across the UK. As we are unsure of the future of the increased relief, our recommendation to clients at present is to bring forward and large capital projects, and where possible span multiple years to further accelerate and maximise the relief available. As always if you are considering carrying out any significant projects, or acquiring new plant and machinery we are able to provide advice in all steps of the process.

Addition of the Structures and Buildings Allowance

The government also announced a new regime labelled the Structures and Buildings Allowance (SBA), which operates under a similar basis as the now defunct Industrial Buildings Allowance (IBA). This regime provides relief for capital expenditure incurred on all non-residential structural and building works which are not covered under the general plant and machinery allowances. This attracts a 2% writing down allowance on a straight line basis over 50 years. From an investors perspective this can be a double edged sword as through claiming the allowance you are reducing the base cost of the building and increasing the potential chargeable gain on disposal. However, from an owner occupier’s perspective this is something which would normally be unobtainable and a welcome source of relief. For most of our manufacturing clients who tend not to relocate frequently this source of relief is very much welcomed and is something which should be discussed with one of our specialists.

Abolishing the Enhanced Capital Allowances regime

The most significant change to the regime over the coming months is the scrapping of accelerated relief for environmentally beneficial plant and machinery. The Enhanced Capital Allowances regime (ECA) provides 100% first year allowances for the purchase of environmentally beneficial assets, or assets which contain environmentally beneficial components. The relief will cease to exist for companies on 31 March 2020 and individuals on 5th April 2020. This means, any expenditure incurred before these dates will qualify, so if you are considering the purchase of new machinery which may contain components which qualify for the accelerated relief it is advisable to speak to us about your purchase and we can provide advice from the outset.

Our advice

If you are considering any significant capital projects over the coming months, please do reach out and speak to us. We are able to assist as much or little as you require and are able to provide advice on maximising claims on expenditure which qualifies for ECAs, structures and buildings and the timing of plant purchases to obtain the maximum relief available.

This article featured in our Manufacturing and Engineering Newsletter. Read the full newsletter here: The Engine – Issue 6

We hope you find our publication useful and if there is anything that you would like to discuss further or if you would like to speak with a member of our Manufacturing & Engineering team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.