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AIA

Finance Bill 2013: Changes to capital allowances

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11th Dec 2012
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The government has confirmed in the Draft Finance Bill 2013 a number of changes to the capital allowances regime, which are particularly important for small and medium-sized businesses looking to invest and grow.

AIA

The surprise announcement of the Autumn Statement, the tenfold increase to the Annual Investment Allowance (AIA) from next month, is good news for businesses looking to invest more than £25,000.

The AIA is available to most businesses, regardless of size, however, very small businesses and those struggling to get hold of finance in the first place will not benefit from the huge increase to £250,000 over the next two years.

Shelley Stock Hutter’s Bobby Lane said the increase was “great news” for larger businesses, but added a reality check: “Very few small businesses have the cash reserves, ability to obtain finance or expenditure plans to take advantage of this.”

However, Paul Belsman of RSM Tenon advised companies considering investing in capital equipment in December that they "should review the timing of that expenditure in the light of this additional relief now available.”

The new legislation will be introduced from 1 January 2013 and provisions will be included to cover accounting periods that straddle the start and end dates.

This measure supports investment by increasing the AIA limit on qualifying expenditure that effectively receives 100% relief from £25,000 to £250,000.

Adam Garrad of the Capital Allowances Partnership, told AccountingWEB: “Expenditure on certain elements of buildings (including most building services and fixtures and fittings) may qualify for capital allowances, either at the special rate pool allowance of 8% or main rate pool of 18%. Clearly the 100% allowance on £250,000 is a significant acceleration in the timing of relief and will hopefully have the desired effect of encouraging firms to embark on programmes of capital investment.”

In terms of the transitional rules, a business with a chargeable period that spans the operative date of the increase on 1 January 2013 may have a chargeable period that began either on or after 1 or 6 April 2012 (the date when the AIA maximum was reduced to £25,000, for CT or income tax purposes respectively) or before the date of the April 2012 reduction. 

Capital allowances author Ray Chidell warned: “The transitional rules applying from 1 January are extremely complex, especially where they involve a period that spans both 1 April 2012 and 1 January 2013.” We will be publishing a separate article by Chidell later this week, explaining and illustrating the details.

For the full transitional provisions for each of these two groups, see HMRC’s Tax Information and Impact Notes (TIIN) for AIA.

First year tax credits: Energy saving or environmentally beneficial plant or machinery
As announced in Budget 2012, secondary legislation will be introduced to extend the time limited first-year tax credits scheme to 31 March 2018.

This will enable loss-making companies to surrender losses attributable to 100% first-year allowances for investments in certain energy-saving or environmentally-beneficial technologies for a further five years.

Andrew Stanley, MD at Stanley Tax Associates, told AccountingWEB: “If you’re a loss-making business capital allowances are in many ways irrelevant, what you need is more turnover! So these changes extend allowing you to effectively cash out this investment to take the tax benefit, even though you haven’t got any taxable profits there to offset against.”

This extension continues the government’s drive towards more sustainable investments in driving business growth in the economy.

HMRC said in the TIIN that extending the scheme for a further five-year period will allow evidence of take-up to accrue and for an informed decision on the scheme's future to be made at the end of that period.

Emissions threshold for a main rate car

As announced at the Budget 2012, legislation will be introduced to extend the 100% first year allowance (FYA) for expenditure incurred on cars with low carbon dioxide emissions and electrically propelled cars for an additional two years to 31 March 2015.

Legislation will also be introduced to exclude from the FYA expenditure on cars that are to be leased, and to revalorise the emission thresholds that determine the rates of writing down allowances for business cars with effect from 1 April 2013.

For cars that are leased rather than purchased, the emission threshold at which the lease rental restriction applies will also be revalorised for leases commencing on or after 1 April 2013 (CT) or 6 April 2013 (IT).

Accountants advising clients looking at replacing cars in the spring should immediately be issued with this information as it could affect the timing of a purchase.

HMRC’s ‘Capital allowances for business cars’ TIIN  explains that the policy objective is to encourage businesses to choose cleaner cars to help ensure that the government’s environmental objective of reducing overall CO2 emissions is met. 

Since the current thresholds were introduced the car fleet has become much cleaner with more cars emitting less than 110g/km and fewer cars emitting more than 160g/km. The CO2  emission thresholds, which determine the rate at which capital allowances are given, and at which lease rentals will be restricted, will also be revalorised so that cars that emit:

  • 95g/km or less are eligible for a 100 per cent FYA
  • over 95g/km but not more than 130g/km are written down at 18 per cent per annum on the reducing balance basis
  • over 130g/km are written down at eight per cent per annum, also on the reducing balance basis

Stanley Tax Associates’ Andrew Stanley commented on the new measures: “It’s really there to motivate businesses to stock their fleets with the most environmentally cars available, so you’re talking hybrids and so forth, but it’s there also as a motivator for the manufacturers to produce more cars in that range.” 

The emissions level applicable for the lease rental restriction will also be reduced with effect from 1 April 2013 to disallow 15% of the payments in respect of cars with emissions exceeding 130g/km. 

Gas refuelling equipment

Perhaps more important for large company investment, it will however come as good news for those with bio gas cars, that there will be first year capital allowances for gas refuelling equipment which should result in more fuel stations.

As announced at the Budget 2012, legislation will be introduced to extend the 100% first year allowance for plant or machinery for gas refueling equipment, for two years to 31 March 2015.

Visit HMRC’s TIIN on gas refuelling equipment for more information.

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