BUDGET 2014
19 March 2014
The budget this year has been one for 'the makers, the doers and the savers' we are told. That probably remains to be seen, but it certainly has been one for capital allowances. A significant temporary increase to the Annual Investment Allowance was announced, which will no doubt benefit the 'makers and doers'. As always, though, the devil is in the detail.
Surprise Annual Investment Allowance Increase
The Annual Investment Allowance (AIA) is available to individuals and businesses investing capital in qualifying plant and machinery. The Chancellor has announced today that the AIA will be temporarily increased from £250,000 per annum to £500,000 from April 14 until 31 December 2015.
This AIA represents a 100% first year allowance on qualifying assets. For businesses this means that up to £500,000 per year of qualifying investment will be immediately set against profits to reduce the tax payable for the period. Without this AIA this qualifying investment would still be set against profits but the relief is given at a much slower rate, and in some cases can take up to 20 years to be fully written off.
The increase is the second such increase in recent years, and takes the AIA up from £250,000 per year to £500,000 from April 14 until December 2015. Rather surprisingly, as it currently stands, the AIA will drop from that point back down to the £25,000 that was in effect before 2013.
Viewpoint
There is no doubt that this increased AIA must represent a significant incentive to business to invest in their property and machinery. However, the measure is temporary and will be subject to a complex time apportionment formula for those businesses whose chargeable period spans the change in rate, so great care should be taken to plan the timing of investment.
Business Premises Renovation Allowance (BPRA)
Much has been made by the Treasury about the perceived abuse of the BPRA rules and therefore today’s announcement proposes revisions to limit this abuse. BPRA was intended to encourage the revitalisation of disadvantaged areas by bringing non-residential property that had been unused for at least a year back into use.
Measures will be introduced to clarify the scope of the expenditure that qualifies for BPRA and limit the relief to actual costs of construction and building work, together with certain specified activities such as architectural and surveying services. Interestingly, the Treasury are very specifically restricting claims for associated project management fees to a maximum of 5% of the actual costs.
Further measures will be introduced to limit claims if any other form of State aid has been received, and there is also mention of a very specific list of assets that can be claimed, although no detail of this has yet been released.
Where expenditure is incurred in advance and tax relief claimed immediately, a new requirement that the works must be completed within 36 months are to be introduced. In addition the rule preventing expenditure incurred on buildings qualifying for relief before they have been unused for a year will be clarified.
Finally, a balancing adjustment is going to be required if certain events occur within a period of 5 years, which is being reduced from the original 7 years.
Viewpoint
BPRA was introduced as a very targeted measure to encourage investment into disadvantaged areas. There is some debate as to whether this has been a successful scheme. The legislation was fairly broadly drafted and so was subject to occasional abuse; therefore this tightening of the rules is not wholly unexpected. However, whether these rule changes serve to simply reduce the incentive to invest may well be the unintended consequence of the changes.
Extension of Enhanced Capital Allowances in Enterprise Zones
Finance Act 2011 announced the establishment of several new Enterprise Zones, a few of which were designated as allowing businesses to claim an 'enhanced capital allowance (ECA)' on qualifying investment into plant and machinery (not to be confused with the Enhanced Capital Allowances for investment into qualifying energy or water efficient assets).
The Chancellor today announced the extension of this benefit for a further 3 years until 31 March 2020. There are restrictions on certain businesses making the claims (such as unincorporated business, fisheries or agricultural businesses etc.), the expenditure must be on new and unused plant, and the expenditure must be incurred on assets for use within designated ECA areas within the Enterprise Zones.
Viewpoint
Together with the announcement of the increased AIA to £500,000, this measure does seem to underline the Government’s intention to encourage business investment to achieve a more sustainable and well-rounded economic growth.
Enhanced Allowances for Energy Saving and Water Efficient Technologies
Legislation was announced by the Chancellor today to modify the Energy and Water Technology lists which define the specific products and criteria that determine eligibility for the ECA. As is fairly typical now at budget time, some new technologies are to be introduced (i.e. active chilled beams and desiccant hand driers with energy saving controls), some qualifying criteria will be modified, and, no doubt, some products will be removed from the lists.
Viewpoint
Detail is pretty thin on the ground at the moment, but it does serve as a reminder to designers and surveyors alike, that both the ETL and WTL are moving feasts and should be checked regularly to ensure that products being considered are still eligible for relief.
Other Measures
The Chancellor announced the establishment of a new Enterprise Zone in Coleraine in Northern Ireland, which is the first in the region. As well as offering the rates, broadband and planning incentives, we understand that this Enterprise will be one of very few Zones offering the enhanced 100% capital allowance relief for qualifying plant and machinery.
Also confirmed yesterday was the extension of the Enhanced Capital Allowances for zero emission goods vehicles to March/April 2018. This will be restricted, though, to businesses that do not claim the 'Plug-in-Van Grant'.
The Chancellor confirmed the intention to bring down the main rate of corporation tax by April next year to 20%, which will be one of the lowest rates in the G20 group of countries.
Imminent Changes to the Fixtures Rules
Whilst updating readers on the measures introduced in the Budget, we thought it important to remember the significant changes coming into force NEXT MONTH for businesses buying second hand commercial property. Without care and attention at the point of purchase, buyers could lose out on any capital allowances available on the fixtures in the building. This could be a significant loss when you consider that these fixtures can be worth as much as 30% of the value of the acquisition.
Please see our recent article for further detail.