Emergency Budget
22 June 2010
Capital Allowances – Changes afoot again but it could have been much, much worse!
The much anticipated first coalition emergency budget was delivered on 22 June with
all sectors feeling the ‘country’s pain’. The business community were also targeted
with the very important, but probably underappreciated, capital allowances bearing
the brunt of the changes.
Whilst corporation tax was reduced, albeit at a far slower rate than large businesses
would have liked, capital allowances will also be reduced to pay for that change.
It is, however, a good example of expectation management, since most will be left
thinking it could have been worse, with something much more severe happening much
sooner.
Capital allowances are the only real relief available to businesses investing in
capital assets – be that through investment in plant & machinery or property. The
rates for both the main and special rate (including integral features) allowances
will be reduced by 2% for periods ending after April 2012, taking the rate down
to 18% per annum for the main pool and 8% per annum for the special rate. Businesses
will feel this drop in relief, and together with the complications of using hybrid
rates during the transitional periods, it will increase their already considerable
compliance burden.
Furthermore, the annual investment allowance was reduced from £100,000 to £25,000,
again from April 2012. The annual investment allowance is an important incentive,
particularly for small businesses, which gives full relief for plant & machinery
expenditure incurred up to the set limit, so this is particularly harsh for them
in what are still very challenging times.
Other major reliefs
The enhanced allowances rules which give 100% relief for expenditure on energy or
water saving installations were unaffected by the budget, although the energy and
water technology list are subject to regular updates.
The planned scrapping of the furnished holiday lets rules (and their advantageous
capital allowances treatment) was withdrawn, although consultation was announced
about proposed changes to some of the key rules. No changes were made to the 100%
business property renovation allowance or the 150% land remediation tax relief regime.
The previously announced changes to the research & development rules have been confirmed
as being applicable from 9 December 2009. These changes abolished the condition
requiring that any intellectual property deriving from R&D needs to be owned by
the company making the claim.
Plans to proceed with the introduction of a 100 per cent first year allowance for
business expenditure on zero-emission goods vehicles was confirmed for companies
for expenditure post April 2010.
Viewpoint
Whilst the reduction in the headline rates of plant & machinery are certainly unwelcome we believe capital allowances has won an important reprieve that will continue to help stimulate the economy. Given the Conservative pre-election pledges and subsequent announcements we anticipated much harsher reductions in allowances.
Businesses, however, should not be complacent; there are still big issues awaiting future consultation including a general reform of the corporation tax system and further amendments to the research and development tax regime. Final judgements cannot be made until we see the detail of these proposals and assess which sectors they will affect.
All business should seek to review their current and retrospective capital allowances positions to make all available claims as soon as possible to take advantage of the existing reliefs.