The Structures and Buildings Allowances (SBA) facilitates tax relief for qualifying capital expenditure on new non-residential structures and buildings. The relief applies to the qualifying costs of building and renovating commercial structures. 

The relief was introduced in October 2018 at an annual capital allowance rate of 2% on a straight-line basis. From 1 April 2020, the annual rate was increased to 3% and the corresponding period reduced to 33 and one third years. 

HMRC’s internal manuals consider the meaning of qualifying capital expenditure for this tax relief. The manuals state that:

The amount of qualifying capital expenditure will depend upon whether the person who first uses the building constructed it themselves, or they acquired it unused from a developer. That amount is determined either directly from expenditure incurred on the construction of a building, or by comparing those costs with the sum paid for the relevant interest in the building.

From the total ‘qualifying expenditure’, any amounts that qualify for other capital allowances or are specifically disallowed must be removed. The qualifying expenditure does not change, even when the ownership of the building changes, there are exceptions relating to VAT liabilities and rebates.

In the Spring Budget earlier this year, the government announced that the temporary Annual Investment Allowance (AIA) cap of £1 million would be extended until 31 December 2021. The Chancellor, delivering the Autumn Budget revealed that the temporary cap will now be extended further until 31 March 2023.

The government says that this move is intended to have positive outcomes for businesses by supporting and encouraging business investment, particularly those that are ineligible for the super-deduction, and by simplifying the tax relief for such investment. The change should also encourage investment in qualifying plant and machinery over the next 17 months.

The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery to be deducted from profits before tax. The relief is normally capped at £200,000 per annum but was initially increased to £1 million from 1 January 2019.

This temporary limit of £1 million is a generous allowance and should cover the annual spend of most small and medium sized businesses. The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.

The extension in the temporary limit means that businesses thinking of incurring large items of capital expenditure will now have additional time to consider their options during these uncertain times. There are complex transitional rules so the timing of any purchase should be carefully considered.

Are you thinking of investing in new plant or other equipment? Remember that the super-deduction offering 130% first-year tax relief is available to companies until March 2023.

The super-deduction tax break was introduced on 1 April 2021 and allows companies to deduct 130% of the cost of any qualifying investment on most new plant and equipment that would ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 a business invests they can reduce their tax bill by up to 25p. The temporary tax relief applies on qualifying capital asset investments until 31 March 2023. 

The super-deduction is designed to help companies finance expansion in the wake of the coronavirus pandemic and help to drive growth. 

In addition, an enhanced first year allowance of 50% on qualifying special rate assets has also been introduced for expenditure within the same period. This includes most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. 

The measures have effect in relation to qualifying expenditure from 1 April 2021, and exclude expenditure incurred on contracts entered into prior to Budget Day, 3 March 2021.

Capital Allowances are the deductions which allow businesses to secure tax relief for certain capital expenditure. Capital Allowances are available to sole traders, self-employed persons or partnerships, as well as companies and organisations liable to Corporation Tax.

The Capital Allowance legislation does not specifically define plant and machinery (P&M). However, there is legislation that makes it clear that most buildings, parts of buildings and structures are not P&M. 

An interesting case dating back to 1982 helps to confirm this point of view. The decided case concerns a company that spent money on décor items such as light fittings and wiring as well as decorative items such as wall plaques, tapestries, murals, prints and sculptures. It was accepted that electric wiring was part of the fabric of the building but not the other decorative assets. 

HMRC’s internal guidance states that inspectors should only accept that items of decor are plant if the taxpayer can show that:

• the trade involves the creation of atmosphere/ambience and in effect the sale of that ambience to its customers; and
• the items on which plant or machinery allowances are claimed were specially chosen to create the atmosphere that the taxpayer is trying to sell.

For example, a painting on an accountant’s office wall that is owned by the accountant is not plant because selling atmosphere is not part of an accountant’s business.

There are special rules that must be followed when you sell an asset on which capital allowances have been claimed. Capital allowances is the term used to describe the tax relief businesses can claim on certain capital expenditure and thereby reduce the amount of taxable profits.

The sales value is usually the sales price. If you gave the asset away, stopped using the asset or sold it for less than it was worth then the market value should be used.

If you originally claimed 100% tax relief on the item, the business is required to add back the difference to their taxable profits. This is known as a balancing charge. A balancing charge is effectively a way of ensuring that a business does not claim more tax relief than they were entitled to on the purchase of a business asset. The balancing charge works in the opposite way to a capital allowance and increases the amount of profit on which tax is due.

If you originally used writing down allowances, you may have a balancing allowance or a balancing charge.

There are special rules for dealing with any balancing charges or balancing allowances where a business ceases to trade.