Designed to help offset the increased Corporation Tax main rate and promote investment, the Chancellor announced the introduction of a new ground breaking super-deduction tax relief. The new temporary tax relief applies on qualifying capital asset investments and will apply from 1 April 2021 until 31 March 2023. The new super-deduction is designed to help companies finance expansion in the wake of the coronavirus pandemic and help to drive growth. 

The measure will apply to qualifying expenditures as follows:

• a super-deduction providing allowances of 130% of most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
• a first year allowance of 50% will apply to most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances

The measure will apply to qualifying expenditure from 1 April 2021 and will exclude expenditures incurred on contracts entered into prior to Budget day, 3 March 2021. Certain expenditures will be excluded. 

The government had also previously announced that the temporary Annual Investment Allowance (AIA) cap would be extended for a further 12 months. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and equipment. The temporary limit of £1 million will remain in place until 31 December 2021 before reverting to the usual £200,000 limit.

The Chancellor’s announcement of a temporary five-fold increase in the Annual Investment Allowance (AIA) will be welcomed by many small and medium sized businesses looking to incur significant capital expenditure on plant and machinery.

The Annual Investment Allowance (AIA) was permanently set at £200,000 for all qualifying expenditure on or after 1 January 2016. The announcement by the Chancellor provides for a temporary increase in the allowance to £1 million for a 2 year period from 1 January 2019 to 31 December 2020.

The AIA allows for 100% first year tax relief for qualifying expenditure on plant and machinery. It can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Partnerships or trusts with individuals and companies in the business structure do not qualify for the AIA. 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.

Businesses thinking of incurring large items of capital expenditure over the coming months should ensure that any purchase is properly timed to take full advantage of the temporary increase in the AIA limit.

The tax treatment of the sale of fixtures and fittings included in the sale or purchase of a commercial building changed from April 2014. From that date, the buyer of a building that contains fixtures can only claim plant and machinery allowances (PMA) if the expenditure on the fixtures is pooled before the sale.

The seller and buyer must also either:

• formally agree a value for fixtures within 2 years of a transfer
• start formal proceedings to agree the value within that time

The formal agreement to satisfy the fixed value requirement is usually achieved when the buyer and the seller make a valid tax election known as a Section 198 claim.

This election effectively binds both the seller and purchaser of a commercial property to an agreed valuation for fixtures and fittings included in the sale. The election is irrevocable and cannot be subsequently changed.

There is a lower Writing Down Allowances (WDA) rate of 8% available for certain long life assets and integral features. A standard 18% WDA is available for fixtures and fittings that do not qualify for the lower 8% rate.

Enterprise zones were first launched in 2011 and are specific geographic areas that provide various tax breaks and Government support. Businesses that set-up in enterprise zones can benefit from up to a 100% business rate discount worth up to £275,000 over a five-year period or 100% enhanced capital allowances (ECA) tax relief for qualifying investments in plant and machinery.

A new set of maps has been published that lists sites within enterprise zones that qualify for the ECA 100% first-year allowances for investments in new plant and machinery until 31 March 2020.

The qualifying list includes specific locations in the Humber Enterprise Zone, North East Enterprise Zone, Tees Valley Enterprise Zone, Deeside Enterprise Zone, Renewables East Enterprise Area, Renewables North Enterprise Area, Black Country Enterprise Zone, Wirral Enterprise Zone, Redcar and Cleveland and Oceansgate Enterprise Zone.

Planning note

In addition, businesses based in an enterprise zone can benefit from radically simplified planning permission for certain developments. All business rates growth within a specific enterprise zone for a period of at least 25 years will be retained and shared by the local authorities in the relevant local enterprise partnership’s area in order to support local economic priorities.

If your business is located in an Enterprise Zone we can help you make the most of any grants or tax breaks available. Please call for more information.