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Budget 2009 - Commentary

The Chancellor today announced very few changes in the property tax arena and one would be forgiven for thinking that on this basis all was well in the building and construction economies. Given the widespread changes made over the last few years we are still taking breath so a quieter Budget may be welcomed but the current economic situation certainly called for more to be delivered.

There were some minor tweaks and additions to expected changes here and there but the one surprise was the announcement of a temporary 12 month 40% First Year Plant & Machinery Allowances for all businesses (not just small or medium) to encourage continued or accelerated investment over this period. Whilst this increases the current 20% general plant & machinery band it unfortunately does not apply to the majority of building assets which still qualify under the 10% special rate pool.

An impact assessment on the proposed Land Remediation Tax Relief changes was also included and signed off as part of the Budget documentation to consolidate the introduction of the recent proposals.

The Budgetary changes will have effect from 1 April 2009 for corporation tax purposes and from 6 April 2009 for income tax, unless otherwise stated.

The areas affected comprise the following:

• Capital Allowances
• First Year Allowances
• Enhanced Capital Allowances
• Leased Plant & Machinery
• Cars
• Landfill Tax
• Land Remediation Tax Relief

Capital Allowances (CAs)

First Year Allowances (FYAs) - Budget Note 04

The primary Capital Allowances change in the Budget is a temporary introduction of FYAs at a rate of 40% for all businesses. The measure has been introduced to encourage investment and aid businesses in these economically difficult times.

Ironically 40% FYAs for small and medium businesses were only abolished 12 months ago in favour of an Annual Investment Allowance of £50,000. Now businesses may be able to benefit from both allowances at the same time, subject to the amount of qualifying expenditure incurred and careful use of both reliefs.

The new FYAs will benefit all businesses regardless of size which is good news but in reality the relief will only providing a timing difference. Previously relevant qualifying expenditure would attract relief at 20% in the general plant & machinery pool but this will now double to 40% providing an acceleration of allowances rather than any additional permanent relief.

As with all FYAs the relief does not apply to leased assets, cars, long life assets or special pools, i.e. the new integral features assets which cover a good number of large value property assets.

Enhanced Capital Allowances (ECAs) - Budget Note 11

The Chancellor today widened the ECAs regime, (as he does every year) in three main areas adding uninterruptible power supplies, air to water heat pumps and close control air conditioning to the list of qualifying technologies. At the same time, however, three types of heat pumps have also been removed from the list.

The changes will take effect on or after a date to be specified by Treasury order before the summer parliamentary recess.

Anti-avoidance measures: Leased Plant & Machinery – Budget Note 33

Various anti-avoidance measures have been introduced over several years now for leased plant & machinery both in Pre-Budget Reports and the following Budgets and this year is no different.

Amendments and clarifications on the draft legislation proposed back in November 2008 to counter avoidance on the grant of long funding leases and a new measure to redefine ‘Sale & Leasebacks’ where an asset continues to belong to the seller were introduced.

The legislation regarding long funding leases seeks to:

• Prevent a step up in allowances for assets appreciating in value.
• Deny first year allowances.
• Restrict relief if greater than allowed under loan financing.
• Deny a choice of treatment as to a long funding lease under a leaseback arrangement.

These changes are generally effective as of November 2008.

No draft legislation was provided accompanying the impending changes to ‘Sale & Leasebacks’ but amendments will be made to reflect ‘definition consistency’, to ensure that initial payments under a lease do not escape taxation and to ensure consistency with chargeable gains treatment. Until draft legislation is forthcoming however, we will not know the true intentions of these changes.

Cars – Budget Note 65

The new rules relating to CAs for cars have been through a protracted number of consultations and have finally come into force. The old value thresholds have been superseded by an emissions scale as follows:

• CO2 emissions not exceeding 160g/km will be eligible for allowances of 20% per annum on a reducing basis.
• CO2 emissions exceeding 160g/km will be eligible for allowances of 10% per annum on a reducing basis.

The existing 100% FYAs for expenditure on new cars with low CO2 emissions not exceeding 120g/km continues until March 2013. Transitional rules apply to cars purchased prior to April 2009.

Landfill Tax – Budget Notes 78 and 79

The standard rate of landfill tax will increase from £40 to £48 per tonne for disposal on or after April 2010. This is in line with previous proposals with further rises set to continue in future years.

New measures will be introduced in Finance Bill 2009 to classify certain uses of material on a landfill site as taxable. Specifically, material used in the making or reinstatement of landfill roads will be subject to landfill tax. The changes which have yet to be published in detail will come into force as of 1 September 2009.

Research is to be conducted into the current classifications of materials such as minerals and soils and whether they should continue to be rated as inert and charged at £2.50/t or increased to the hazardous rate of £40.00/t. It is likely that some of the lower band categories will be altered in line with the EU Directive classification but probably not until April 2010.

A consultation has been issued in respect of both of the above issues with responses required by July 2009.

Land Remediation Tax Relief (LRTR) - Impact Assessment Chapter 11

A raft of changes have been proposed previously ranging from the extension of the scheme to include long term derelict land and Japanese Knotweed to addressing timing and certainty issues and to refocus the scheme to its intended path. The consultations have been ongoing for some 24 months and at last the proposals are coming into force under Statutory Instrument to be executed later this summer but effective from April 2009.

The Budgetary notes include an impact assessment of the changes which was signed off and accepted as fair and reasonable.

A further legislative but minor consultation is to be issued shortly on amendments to the current draft legislation to allow HM Revenue & Customs to specify by Order circumstances where companies can receive tax relief for contamination not present on property when acquired.