BUDGET 2010 - DOUBLING OF ANNUAL INVESTMENT ALLOWANCES TO £100,000
24 March 2010
The Chancellor presented his last budget to the House before the general election today. There were some surprise changes to the capital allowances regime, which will generally be welcomed by business.
Annual Investment Allowance (AIA)
The 100% AIA will be doubled from £50,000 to £100,000 per annum for capital expenditure incurred on plant and machinery expenditure on or after 1 April 2010 (for Corporation Tax) and 6 April 2010 for those within the charge to Income Tax. Subject to certain exceptions, most businesses, regardless of size are entitled to claim this relief.
Where businesses spend more than the annual limit, the additional expenditure is relieved according to the relevant category of plant or machinery, either at the 10% or 20% rate. Any chargeable period that spans the operative date of the changes will be relieved on a proportional basis.
A new anti-avoidance rule has also been introduced from 24 March 2010, to disallow any loss attributable to the AIA being set against general income. This will apply where relevant tax avoidance arrangements have been entered into on or after the operative date.
Whilst this increase in the AIA limit is to be welcomed, it does not offset the ending of the temporary 40% first year allowance that ended on 31 March 2010.
Plant & Machinery – Cushion gas
Cushion gas is used in gas storage facilities and is accepted as qualifying for plant & machinery relief. The budget clarified that expenditure on cushion gas on or after 1 April 2010 will be eligible for relief at the special rate of 10%.
All leases of cushion gas from 1 April 2010 will be treated as funding leases, in order to ensure that where the gas is leased for more than five years, the lessor will be taxed by way of the commercial substance of the lease rather than the legal form. This way, if the lessee is tax resident in the UK, the lessee will have the option to claim the relief.
100% Enhanced Allowances – Energy Efficient Plant
Two new sub-technologies will be added to the energy technology list as a result of today’s budget – permanent magnet synchronous motors and biomass fitted warm air heaters. Further more compact heat exchangers and the liquid pressure amplification sub-technology, are to be removed. The criteria for taps and showers are to be tightened on the water technology list together with other ‘housekeeping’ changes to the general criteria. Detailed criteria will be published later this year.
100% first year allowance for zero-emission goods vehicles
A 100% first year allowance (FYA) will be available on new and unused zero emission goods vehicles. The goods vehicles cannot under any circumstances produce any CO2 emissions when driven, and must be primarily suited to carrying goods or burden. The measure will have effect for a period of 5 years for expenditure incurred on or after 1 April 2010 for corporation tax or 6 April 2010 for income tax purposes. There are the certain restrictions, however, on the type of businesses that will be entitled to the new FYA, and the general restrictions on eligibility of FYA will also be relevant.
Other Measures
Following consultation, HM Treasury have introduced a new provision which will require HMRC to publish the criteria by which they determine which materials qualify for the lower rate of Landfill Tax. These criteria will be applicable for disposals made after 1 October 2010, and details will be made available in the Finance Bill.
The standard rate of Landfill tax was also raised by £8 per tonne to £56 per tonnes from 1 April 2011.
Furnished Holiday Lets
The advantageous rules for furnished holiday lets were due to be repealed in this year’s finance bill. However, due to the imminent general election, the Finance Bill appears to have been shortened with the rule changes for furnished holiday lets being omitted. It is not clear whether this is merely a short hiatus for the old rules, or a complete turnaround.