The 2018 Budget delivered opportunities for businesses, intended to support and encourage them to invest.
One of the key developments confirmed by the Chancellor – but originally announced in previous Budgets – is that corporation tax will fall to 17% from 2020. This new low rate will make incorporation more attractive for smaller businesses and reduce the tax burden for companies of all sizes.
Along with the cut in headline rate, the Chancellor also announced some specific measures for business investment.
The annual investment allowance (AIA) will increase from £200,000 to £1,000,000 for all qualifying investments in plant and machinery. The increased allowance only applies on investments between 1 January 2019 and 31 December 2020. This is a generous extension and will benefit many businesses. Indeed for most businesses this will cover all their expenditure on such items. Where an accounting period spans these dates, the calculations need some care as they are quite tricky.
The AIA allows a company to deduct the full cost of an investment from profits before tax, and can be claimed against items that you keep to use in your business, as well as costs of demolishing plant and machinery, parts of a building considered integral, known as ‘integral features’, some fixtures, e.g. fitted kitchens or bathroom suites, and alterations to a building to install other plant and machinery .
Alongside this, a new Structures and Buildings Allowance has been introduced .This has been set at 2% of construction or conversion costs over 50 years, where all the contracts for physical construction works were entered into from 29 October 2018. This is in effect a re-emergence of the old Industrial Buildings Allowance, albeit at 2% and not 4%, but broadened out to cover a much larger range of industries.
It’s not all good news, however, as the Government has also reduced the special rate reduction from 8% to 6% for certain types of plant and machinery. In addition, ECAs for energy efficient and other environmentally beneficial investments are being withdrawn from April 2020.
If you are planning any capital investments for your business, please get in touch to discuss what tax-efficient options are available to you. Please bear in mind that the rules regarding when expenditure is incurred, and therefore what rate of allowances applies when the rate is changing , are quite complicated. If you are planning to time your investment to take advantage of these changes , you will need to understand these rules.
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