The new Structures and Buildings Allowance and the increase to the Annual Investment Allowance were the main Capital Allowance headlines from Budget 2018, but here we set out some further significant changes for businesses and investors to take note.
The Chancellor announced that from 1 April 2019 the rate of relief for Special Rate Pool will be dropped from its current 8% per annum on a reducing basis to 6%. This is to align the rate of relief more closely to the useful life of the assets on which it is claimed.
For chargeable periods which straddle 31 March 2019, there will be the requirement to calculate and apply a hybrid rate for the transitional period. For most SME’s this change will have little impact, as it is more than compensated for by the increase in the Annual Investment Allowance to £1m.
Since 2001, businesses and investors have been able to obtain an accelerated rate of relief of 100% in the year of expenditure for certain energy efficient or water saving technologies. From 1 April 2020 this enhanced relief is to be removed along with the ability to claim tax credits for those in a loss making position.
In addition, the current products as manged by the Carbon Trust are to be revised. For any ongoing or planned expenditure up to 1 April 2020, clients should check and ensure that the suppliers of those potentially qualifying products are made aware of the changes to the qualifying criteria. If necessary, relist their products or check that they meet the performance criteria so that the necessary qualifying certification can be obtained to allow the client to obtain the enhanced allowances.
As projects get closer to the 1 April 2020 deadline, consideration will also need to be given to the point as to whether qualifying expenditure has been incurred before the abolition date and so supply contracts will be crucial to determine the position.
Finally, in a recent Capital Allowances case of SSE Generation Limited vs HMRC, it considered and, in some cases, allowed Capital Allowances to be claimed on alterations to the land. New legislation has now been drafted and takes immediate effect from 29 October 2018, allowing the claiming of Capital Allowances for costs for altering the land, only where its purpose is for the installation of qualifying plant and machinery.
This legislation change intends to clarify the fact that alterations to land, to the extent they do not relate to the installation of plant and machinery, cannot be claimed as normal plant and machinery allowances. It does also confirm that the new Structures and Buildings Allowance will, however, provide tax relief for land alterations connected to the construction of structures and buildings.