The 2018 Budget has come and gone, and we are now back to the daily debate of Brexit. However, let’s not forget the Budget as there were areas of good news that need to be exploited.
Although one would not want to admit it, the delay to implement IR35 until April 2020 was for many a welcome relief. The construction industry traditionally struggles with the status of workers and although CIS is still very much in place, many operators are using companies to maximise after-tax returns.
When the rules were enforced in April 2017, for the public sector, this caused an awful lot of heartache, which generally meant costs went up. Deferment of implementation has given companies a chance to get their house in order, as well as prepare for the potential change.
The increase in the annual investment allowance (AIA) for qualifying plant and machinery rising from £200k to £1m from 1 January 2019 is a welcome opportunity to reinvest and install new technology and equipment.
Care needs to be given for companies whose year end straddles 1 January 2019. For example, in respect of a year ended 31 March 2019, to compute the AIA available for the entire accounting period, 9 months of the AIA at £200k, i.e. £150k, is added to 3 months of the AIA at £1m, i.e. £250k, giving a total of £400k. However, the maximum amount of this available AIA that can be claimed in respect of qualifying expenditure incurred before 1 January 2019 is £200,000 (note that it is not £150,000). There is no such timing restriction applying to expenditure incurred on or after 1 April 2019; so, if the business defers all expenditure until the new calendar year, the full £400k is available for the 100% relief.
Clearly, significant capital expenditures of any substance should possibly be deferred until after 1 January 2019. Similarly, the potential timing of future expenditure covering the two-year period to 31 December 2020 needs to be planned with a view to optimising the allowances.
Although not of major economic significance, the ability to claim the new Structural Buildings Allowance (SBA) on new non-residential build where the contracts for the construction works are entered into on or after 29 October 2018 is helpful.
This relief is a simple straight-line deduction against profit of 2% of construction costs, excluding land, over 50 years. It’s not clawed back on sale and the benefit of any unused allowances can transfer to a new buyer. Effectively you are getting, albeit over a long period, tax relief on expenditure incurred on buildings in line with the traditional write down of buildings for accounting purposes. Along with the increase for capital allowances, the Chancellor is trying to encourage investment. One wonders whether in the post-Brexit arena there will be further increases?
It is not all good news, as the 100% enhanced capital allowances (ECA) first year allowance will end in April 2020. However, until then, with careful planning you can secure both the 100% ECA and the £1m AIA.
The chancellor also helped the housing market by confirming ‘help-to-buy’ has a two-year extension to 2023, albeit now with regionalisation of funding.
Funding is being increased for the NHS which should bring refurbishment and new builds. Although PFI is coming to an end, the general view is that this is likely to be replaced.
On balance, the construction industry has opportunities to explore and, where possible they should take them.
If you have any questions or would like to discuss this in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Construction and Real Estate team.
This article originally appeared on the blog of our member firm, MHA MacIntyre Hudson.