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Mini-Budget: Tax incentives for investment


Chancellor Kwarteng focused on investment and growth in his mini-Budget, which included proposals for enhanced allowances in investment zones and fixing of the AIA cap.

23rd Sep 2022
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Investment zones

The Chancellor said his government will work alongside devolved administrations and local partners to introduce a series of new investment zones throughout the UK to drive growth and unlock housing.

It is understood the government is in discussions with 38 Mayoral Combined Authorities that have expressed an interest in the investment zones. A range of other measures were announced for the zones such as relaxed planning and wider support for the local economy. The range of tax incentives under consideration are:

  • Enhanced Capital Allowances (ECA) in the form of a 100% First Year Allowance (FYA) for qualifying expenditure on plant and machinery.

‘Qualifying expenditure’ will presumably relate to the already familiar definition of qualifying expenditure and is likely to include expenditure for loose items of plant and machinery such as process and manufacturing equipment, as well as items of plant and machinery fixtures attaching to a building such as heating and ventilation systems, electrical systems, sprinkler systems and the like.

  • Enhanced Structures and Buildings Allowance (SBA) for non-residential buildings of 20% per annum over five years.

This is a significant increase in the base Structures and Buildings Allowance rate of 3% per annum over 33.3 years and is double the already enhanced 10% rate available for qualifying expenditure incurred in Freeports. However, SBA is not an attractive incentive to some investors, as there are unattractive Capital Gains Tax clawback provisions relating to the disposal of assets where SBA has been claimed. We look forward to reading the detail on this measure, particularly at the end of the ten-year life of the investment zones.

The investment zones will relate initially to clearly specified sites in England and the tax incentives announced will be limited to a period of ten years.

In terms of available tax incentives, it would appear that the investment zones are similar in nature to the current Enterprise Zones and Freeports. It remains to be seen if the availability of the ECA and SBA will have the desired effect of stimulating growth in the development of commercial property and investment in plant and machinery for businesses - particularly in the context of increased borrowing costs, higher energy costs and inflationary pressures in the economy. However, in principle, these are generally welcomed measures.

AIA cap fixed

Another positive move announced was in relation to the Annual Investment Allowance (AIA). Businesses and individuals can currently claim up to £1m per annum of relief against taxable profits for investment in items of qualifying plant and machinery. However, the AIA cap has seesawed between levels of £25,000 per annum up to the current rate of £1m per annum and was set to decrease again to £200,000 on 1 April 2023. The Chancellor has now announced plans to make the AIA level of £1m a permanent rate and businesses are sure to welcome the certainty that this will bring.


One other measure announced was in respect of some technical adjustments relating to the operation of the super-deduction policy.

This was a two-year measure, introduced by Rishi Sunak in April 2021 and set to expire on 31 March 2023, whereby a 130% super-deduction capital allowance was made available to companies investing in qualifying plant and machinery on the basis they would be subject to a 25% corporation tax rate on 1 April 2023.

With the Chancellor announcing today that the 25% corporation tax rate would be scrapped, this gave a permanent tax advantage to corporates over partnerships and individuals. It is unclear what the “technical adjustments” will be but they are likely to relate to the clawback of the relief for events occurring after 31 March 2023.

R&D under review

The Chancellor also referred to continuing to invest in R&D, but no new major announcements were made in the mini-Budget specifically relating to the R&D tax relief scheme. Instead, the Treasury announced that the scheme would be continued to be reviewed and amended where necessary.  

Replies (1)

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By Ian McTernan CTA
26th Sep 2022 16:09

Excellent article on some of the best changes in the Budget, which seem to have been completely under reported (or not even mentioned in Rebecca's main article on the Budget).

The investment zones will be very closely watched by many firms - I remember how effective they were (with less breaks) in the 80's.

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