|
|
|
Today’s Budget provides further detail on a number of previously
announced capital allowances measures together with the introduction of some
new measures.
Changes to pool rates
Low carbon emission cars
Write down of small pool balances
Extension of FYA for natural gas, biogas and hydrogen refuelling
equipment
Enhanced Capital Allowances (ECAs) for energy efficient and water saving
(environmentally-beneficial) technologies
Introduction of payable enhanced capital allowances
Industrial Buildings Allowances (IBAs), Enterprise Zone Allowances (EZAs)
and Agricultural Buildings Allowances (IBAs)
Capital Allowances: Plant and Machinery: Annual Investment
Allowance (AIA)
Integral features and thermal insulation
Capital allowances buying and acceleration: anti avoidance
Tax incentives for development of brownfield land
Our view
Changes to pool rates
As previously announced in Budget 2007, the Government will press ahead with
reducing the rate of writing down allowance (WDA) in the general plant &
machinery (P&M) pool from 25% to 20% per annum and increasing the rate from
6% to 10% in the long-life asset pool. These will take effect from 1 April
2008 for corporation tax payers and 6 April 2008 for income tax payers.
Expenditure on long-life assets incurred before April, including brought
forward balances, will be subject to a hybrid rate calculation based on the
number of days of the accounting period spanning the April date and applying
the 6% and 10% rates to the expenditure balances. Expenditure on long life
assets incurred post April will be allocated directly to the new Special
Rate pool and, based on the technical note issued in December 2007 will be
eligible for WDA at 10% for the entire period.
Top
Low carbon emission cars
The existing 100% first year allowance available in respect of expenditure
incurred on new cars with emissions of 120g/km or lower is to be extended
for a further five years for cars that meet a more stringent 110g/km or
lower test.
Allied to this will be a transitional rule to ensure that leased cars that
have previously qualified as low emission cars, but would no longer do so
under the new criteria (i.e. affecting those cars falling within the 110 to
120g/km range), do not fall foul of the expensive car leasing disallowance
for cars costing more than £12,000.
Top
Write down of small pool balances
Whilst the new AIA will allow businesses to write off investment in the
first £50,000 of P&M expenditure in the year from April onwards, small and
micro businesses will now also be able to write off existing pool balances
of £1,000 or less. This is a sensible measure that will help to reduce the
administration burden on smaller businesses with pools of minimal
expenditure. It should be noted that this will only apply to general and
special rate pools and not to single asset pools.
Top
Extension of FYA for natural gas, biogas and hydrogen refuelling
equipment
The current 100% first year allowance for expenditure incurred on the
provision of refuelling equipment for natural gas and hydrogen powered
vehicles is to be extended for a further five years and will also be
available for biogas refuelling equipment.
Top
Enhanced Capital Allowances (ECAs) for energy efficient and water saving
(environmentally-beneficial) technologies
The chancellor announced further amendments to the existing 100% ECAs regime
by introducing an additional technology on the ‘Water Technology Criteria’
list to include assets relating to waste water recovery and reuse systems,
and four additional sub-technologies to the ‘Energy Technology Criteria’
list to include compressed air master controllers, compressed airflow
controllers, heat pump dehumidifiers and white LED lighting. Housekeeping
changes will also be made to existing criteria and the list will be updated
later in 2008.
Top
Introduction of payable enhanced capital allowances
As per the technical note issued by the government on 17 December 2007 the
Chancellor confirmed the introduction of first-year tax credits on
loss-making companies who invest in energy efficient assets on or after 1
April 2008 which appear on the Energy Technology List and are hence eligible
for ECAs. The company will receive a first-year tax credit of 19% of the
losses attributable to expenditure on ECA assets subject to an upper limit
of the greater of the company’s PAYE and NIC liabilities in the period and
£250,000.
A claim must include a description of the asset, amount of expenditure and
the date of expenditure. Anti-avoidance provisions have been made to claw
back any credits given should the ECA assets be sold or disposed of within 4
years of receipt of the tax credit.
Top
Industrial Buildings Allowances (IBAs), Enterprise Zone Allowances (EZAs)
and Agricultural Buildings Allowances (IBAs)
It has been confirmed that legislation will be introduced in Finance Bill
2008 to give effect to the previously announced phased withdrawal of IBAs
(including hotel allowances) and ABAs which apply from 1 April / 6 April
2008 and the ceasing of these allowances, together with EZAs, from April
2011. It should be noted, however, that EZAs will still run the risk of
recapture even for periods beyond 2011.
Anti avoidance legislation will also be introduced in Finance Bill 2008 to
combat planning designed to secure additional writing down allowances.
Top
Capital Allowances: Plant and Machinery: Annual Investment Allowance (AIA)
Legislation will be included in Finance Bill 2008 to introduce a new AIA for
the first £50,000 of a business’s expenditure on most plant and machinery
each year. This forms part of the business tax reform package announced at
Budget 2007.
On and after 1 April / 6 April 2008 most businesses, regardless of size,
will be able to claim the new AIA on the first £50,000 spent on most plant
or machinery assets subject to anti avoidance measures to deal with matters
of control, related entities and artificial uses of the AIA.
Certain exceptions that apply to FYAs will continue to have effect for the
purposes of the AIA. The main exception is expenditure on cars. However,
unlike SME FYAs, the AIA will be available for expenditure on long-life
assets and assets for leasing.
Top
Integral features and thermal insulation
As previously announced, the new classification of “integral features” to be
allocated to the new 10% special rate pool will be included in Finance Bill
2008 with effect from 1 / 6 April 2008. The assets are contained in a short
list and are:
-
Electrical systems (including lighting systems);
-
Cold water systems;
-
Space or water heating systems, powered systems of ventilation, air
cooling or air purification, and any floor or ceiling comprised in such
systems;
-
Lifts, escalators and moving walkways;
-
External solar shading;
-
Active facades
There is a new sting in the tail however, as proposals are put forward to
prevent revenue deductions being claimed where 50% or more of an integral
feature is replaced within a 12 month period, with such expenditure instead
being added again to the 10% pool. This will particularly impact those
businesses that regularly refurbish or renovate their premises, such as
those in the retail or leisure sectors, who will be prejudiced by initially
receiving a rate of tax depreciation far lower than the economic
depreciation of the assets and prevented from securing a revenue deduction
for various repairs instead claiming again via the 10% special rate pool for
such repairs.
Expenditure on thermal insulation is extended to cover all existing
buildings, other than residential properties, from 1 April / 6 April 2008,
with the WDA being 10%. Previously this relief was only available for
expenditure on industrial buildings.
The extension to all existing buildings of the availability of tax relief on
thermal insulation expenditure is welcomed, though this is likely to be of
limited benefit to businesses.
Top
Capital allowances buying and acceleration: anti avoidance
Legislation is to be included in Finance Bill 2008 to stop the use of
arrangements to generate balancing allowances where trades are sold when the
market value of plant and machinery is less than its tax written down value
and where the acquirer does not intend to carry on the trade in the long
term. Relevant transactions after 12 March 2008 will now be treated as
falling within s343(2) ICTA. As a result no balancing allowances will be
available and capital allowances will continue to be available in the normal
manner.
Top
Tax incentives for development of brownfield land
Legislation will be introduced in Finance Bill 2009 to extend land
remediation relief to expenditure on derelict land and to the removal of
Japanese knotweed by treatment on site from 1 April 2009.
Secondary legislation will be introduced later this year to phase out the
landfill tax exemption for waste from the clean up of contaminated land from
1 April 2012.
A consultation on the draft legislation for the reform to land remediation
relief and the landfill tax exemption for waste from the clean up of
contaminated land will take place in summer 2008.
Top
Our view
The majority of these measures provide further clarity and confirmation
of the Government’s intention to implement previously notified changes.
There is the introduction of anti avoidance around the IBA changes,
although directed at any arrangements entered into from the date of the
Budget rather than with retrospective impact, as well as various
extensions to the first year allowances for investment in low carbon and
additional technologies under the ECAs regime.
Most businesses incurring capital expenditure on real estate will be
impacted by the introduction of the integral features rules which pay
little regard to the context and nature of the assets in particular
trades. Allied to this is the new proposal to prevent revenue deductions
for expenditure incurred on replacing more than 50% of assets classed as
integral features within a 12 month period. This amendment provides
further evidence of the Government's lack of flexibility in its
proposals for businesses' tax depreciation of assets which in many cases
depart significantly from its current stated aim of better aligning
capital allowances with the economic depreciation of assets. |
Top
|
|
