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Sunak lays a couple of paving stones

£1m annual investment allowance extended to 31 March 2023


Steven Bone is relieved the Chancellor decided to delay the AIA reduction. But in what was a quiet Budget for capital allowances, he questions whether the Sunak missed a green opportunity.

27th Oct 2021
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The spring 2021 Budget was remarkable from a capital allowances perspective, with the Chancellor announcing that he wanted an investment-led recovery from the economic damage of Covid-19.

So, rafts of capital allowances measures were introduced. These included for expenditure on new and unused plant or machinery by companies between 1 April 2021 and 31 March 2023, the 130% super deduction scheme for main pool plant and machinery and the 50% ‘SR allowance’ for special rate assets.

Enhanced capital allowances for freeports were also introduced for expenditure between 1 April 2021 and 30 September 2026, giving 100% plant & machinery allowances, and 10% structures and buildings allowances over 10 years instead of the usual 33 1/3 years. As a result of these measures no exciting capital allowances changes were expected during this Budget.

Annual investment allowance delayed

But, unpopular legislation was already in place for the 100% annual investment allowance (AIA) threshold for spend on plant and machinery to fall on 1 January 2022 from £1m to £200,000.

It was far from ideal for this cap to be slashed at precisely the time businesses need encouragement to invest to help the economy. But what made it even worse is that the transitional rules that apply can result in a business having its effective AIA limit restricted to significantly less than £200,000 for a period.

So, the ATT made representations to the government asking for that, for the year of change, an AIA is available on expenditure of up to £200,000 regardless of when the expenditure was incurred during the period.

Fortunately, in the Budget the Chancellor has gone one step better and decided to delay the AIA reduction for one year and three months until 1 April 2023 to align the end of the £1 million AIA limit with the end of the 130% super-deduction. But that does kick the transitional issues down the line.

Structure and buildings allowances

The only other capital allowances change is a minor one for structures and buildings allowances (SBAs) which was already announced in July and will only apply in some cases.

To claim SBAs a taxpayer needs to have an ‘allowance statement’, otherwise their expenditure will be treated as nil. The allowance statement must provide details, including the date when the asset is first brought into non-residential use because this is usually when the SBAs 33 and one-third years’ tax life starts.

But where further qualifying expenditure is incurred after an asset is brought into qualifying use, or treated as such under simplification options, the tax life for those additions can start later and there is a risk that later owners who are unaware could stop claiming SBAs earlier than they are entitled to. Where this is relevant, the legislation will require the allowance statement to include the later date that qualifying expenditure is incurred.

A missed opportunity

A final thought is that capital allowances have long been used by governments to encourage desirable investment by business.

So, it is disappointing that given current climate change and sustainability agendas, the Chancellor has missed an opportunity to boost to environmental and sustainability investment by creating enhanced or accelerated capital allowances in these areas. For example, for repurposing and insulating buildings or delivering net zero carbon developments.

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