Time limit on taking advantage of UK’s capital allowances regime 

The changeable economic backdrop has created a challenging environment for businesses trying to plan for the future, minimise costs and retain much needed cashflow. Tax reliefs like capital allowances are an important possible contributor to a businesses’ cashflow and should be assessed to ensure they are maximised where applicable before the tax advantage disappears.

Rishi Sunak kickstarted a reform of the capital allowances regime through a public consultation back in May 2022 when Chancellor. At that time his intention was “to build on the momentum of the super-deduction to drive and sustain growth in the UK, and we’re committed to doing that through cutting and reforming investment taxes.” However, world events and many political changes have overtaken this significant reform, placing it inadvertently into the background with some minor changes to the relief announced in September.

With the 6% corporation tax increase now going ahead as planned in April 2023, there are increased calls about how the Government can position the UK to be seen as an attractive investment opportunity. The consultation’s results could yet be utilised to support this.

In this insight, Gurj Sandhu, National Head of Capital Allowances, outlines the detail of the most recent capital allowances changes and why businesses now have four months to ensure any claims are maximised.

What changes have been announced?

Annual Investment Allowance
The Annual Investment Allowance (AIA) will now be permanently retained at the increased £1m level.

AIA permits 100% relief for up to £1m of expenditure incurred each year on qualifying plant and machinery assets and is welcome news for many SMEs.

Investment Zones
Local Investment Zones are to be created to encourage development and to “unleash the power of the private sector”. In these agreed areas, of which there could be almost 40 in England, taxes will be cut, and tax reliefs will be accelerated, including 100% on qualifying investment in plant and machinery, and on purchases of land for commercial use. The creation of similar Zones for Scotland, Wales and Northern Ireland are being discussed with devolved administrations.

The super deduction

The super-deduction allowances scheme, which was introduced back in March 2021, is an enhanced tax relief that allows companies to claim 130% capital allowances on main pool plant & machinery expenditure, such as trade equipment, for a period of two years. The scheme closes at the end of March 2023, and it seems likely that there will be no extension, despite calls for the scheme enhancement to continue beyond this date. As a result, now is the best time to invest in commercial property and/or plant & machinery from a capital allowances perspective.

What changes should be considered moving forward?

In the long term, enhanced relief for green and energy efficient investment need to be considered. The previous initiative known as enhanced capital allowances became cumbersome and unpopular. Therefore, any new scheme needs to be simple but effective.

The introduction of tax credits to promote investment across loss making businesses are also under consideration.

Retrospective claims and deferring relief

With businesses facing an uncertain and changeable economic backdrop, it’s important to note that claims can also be processed for historical projects where the following is applicable:

• The business has in the past acquired a commercial property and still owns it.
• The business has in the past incurred significant levels of property expenditure and did not at the time undertake a specialist capital allowances exercise.

Often on major projects a lack of cost information from contractors means valuable allowances are missed. However, claims can in fact still be produced by our specialist surveyors where no cost information exists.

Crucially, unclaimed capital allowances can be carried forward in whole or in part. Although, a specialist capital allowances advisor should be contacted to ensure that no enhanced reliefs are missed by doing so.