The capital allowances changes announced in this Budget were largely as expected. As announced in the June Budget 2010, from April 2012 writing down allowances will be reduced to 18% and the Annual Investment Allowance will be reduced to £25,000.
The disposal time limit on the capital allowances short life assets election will be extended from April 2011 from four to eight years, meaning that accelerated tax relief can be obtained where assets designated as “short life” are sold or scrapped within eight years.
The Business Premises Renovation Allowance will be extended for a further five years from 2012.
The list of designated energy saving technologies qualifying for enhanced 100% capital allowances will be updated during summer 2011, subject to agreement with the European Commission, to include one new technology: certain energy efficient hand dryers. The criteria for automatic monitoring and targeting equipment will also be revised.
In addition to the announcement of the creation of new Enterprise Zones, the Government will consider, in a limited number of cases, the scope for introducing enhanced capital allowances to support Enterprise Zones in assisted areas, where there is a strong focus on high value manufacturing. There will clearly be a number of further announcements on this before we know the scope of the new allowances and start date.
The Government will consult in May 2011 on the appropriate capital allowances treatment of
expenditure on plant and machinery that attracts tariffs under the feed-in tariffs or Renewable Heating Incentives schemes with a view to introducing new legislation in the Finance Bill 2012.
R&D Tax Credits increased for SMEs
Following responses to the consultation document published on the effectiveness of the Research and Development (R&D) tax credits schemes in November 2010, the SME scheme rate of relief will increase from 175% to 200% from April 2011 and 225 per cent from April 2012, subject to EU State aid approval.
The Government will simplify the schemes, including:
- removing the Pay As You Earn (PAYE)/NICs cap on the amount of payable credit that can be claimed,
- removing the minimum expenditure rules and amount of payable credit that can be claimed; and
- allowing relief through the large company scheme for subcontracted activity which forms part of a wider R&D project.
These moves should significantly increase the number of SMEs able to claim R & D tax credits, and the amounts claimable, and will be welcomed by a wide range of smaller companies, not just those involved in pure scientific or highly technical research.
To allow for the increase, while remaining within State aid intensity thresholds, the deduction available under Vaccine Research Relief for SMEs will be reduced to 20% of qualifying R&D expenditure on vaccines research from 1 April 2011 and abolished from April 2012.
Capital allowances anti-avoidance legislation
The government intends to tighten up the Capital Allowances Act 2001 anti-avoidance provisions to prevent abuse of the capital allowances rules for plant and machinery.
The current anti-avoidance test is whether the sole or main benefit arising from the transaction is obtaining an allowance. The proposal is to replace this 'sole or main benefit' test with a new rule in line with anti-avoidance tests elsewhere in the Taxes Acts and further changes will be proposed to make the legislation as clear and effective as possible.
A consultation document will be published with further details in May 2011 with a view to introducing legislation in Finance Bill 2012, so advisers will have some advance warning of the scope of these changes, and (potentially, at least) an opportunity to comment on them.
The government is also going to consult on plans to introduce changes to the capital allowances fixtures rules that businesses must pool their expenditure on fixtures in a building within a short period of acquiring the building, in order to qualify for capital allowances. A consultation document will be published at the end of May, although no date has been announced for the implementation of any new legislation arising out of this consultation.