Budget 2018: Capital allowances and corporate reliefs
The message for companies from the Chancellor was that the UK is very much open for business, with new incentives for investment in plant, equipment and buildings.
There is a two-year temporary hike in the annual investment allowance (AIA) to £1m from 1 January 2019. The AIA threshold has had a volatile history since its introduction in April 2008 but has been set at £200,000 since 1 January 2016.
Clearly, the increase is designed to encourage businesses which may be hesitating to commit to investing in new plant and equipment pending the outcome of Brexit negotiations.
Allowances for buildings
Another stimulus for capital investment is the introduction of a structures and buildings allowance (SBA). With no apparent irony, HMRC’s technical note identifies the absence of relief on commercial buildings as a “gap in the UK’s current capital allowances regime”. Perhaps someone should remind the Treasury that allowances on industrial and agricultural buildings were phased out from April 2011 to “remove outdated and unjustified distortions”?
There will still be no tax relief for the cost of commercial land, but the SBA at flat 2% allowance on construction or conversion costs over 50 years is better than nothing. SBAs come at the cost of a reduction in the rate of writing down allowances on assets in the special rate pool from 8% to 6% from April 2019.
The Chancellor also appears to have had a change of heart concerning tax relief on the acquisition of goodwill. For acquisitions after 8 July 2015, tax relief on most intangible assets was withdrawn. Relief is to be reintroduced for certain intangible assets from April 2019, with a consultation to take place on the detail. This means businesses will have three intangible regimes to contend with:
- pre 31 March 2002;
- 1 April 2002 to 8 July 2015; and,
- post 6 April 2019.
A genuinely new and welcome development is the alignment of the intangible asset degrouping provisions with the capital gains rules from 7 November 2018, ending a longstanding distortion in the tax treatment of intangibles.
Corporate tax rates
Most businesses will generally be content with Budget 2018. The corporate tax rate reduction to 17% from April 2020 has survived, there are a few new reliefs and allowances to help capital spending.
The Chancellor has had a go at redressing some of the perceived unfairness in the way the tax rules apply to online giants through the proposed digital services tax. But what businesses value most is a stable and certain tax system, and the turnabout nature of some of the Budget 2018 announcements is slightly frustrating.
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Jacquelyn Kimber is a tax partner at Newby Castleman LLP in Leicester, where she advises on a range of tax issues affecting individuals and businesses, including offshore matters and trusts. She can be contacted on 0116 254 9262 or by ...