The Chancellor introduced some significant new measures affecting both capital allowances and R&D tax incentives in the recent Budget.
Capital allowances saw the bulk of the changes, with the main item being the introduction of a new Structures and Buildings Allowance (SBA) of 2% of construction cost per annum over 50 years, which provides relief for qualifying capital expenditure on new non-residential structures and buildings where contracts are entered into on or after 29 October 2018. This will provide welcome tax relief on assets that currently attract no allowances, and is likely to be similar in scope to the old Industrial Buildings Allowance but with the absence of balancing allowances and charges.
There was also good news in the shape of a temporary increase in the Annual Investment Allowance to £1 million from £200,000 between 1 January 2019 and 31 December 2020. This will be of benefit to businesses incurring expenditure on plant and machinery in excess of £200,000 per annum.
However, there were also some less positive announcements, with the special rate of writing down allowance to fall from 8% to 6% from April 2019, meaning full tax relief on such assets will be deferred significantly. In addition, the environmental enhanced capital allowances schemes will both be abolished from 2020 to help fund the creation of an Industrial Energy Transformation Fund, to help businesses that use large amounts of energy to transition to using less.
On the R&D tax incentives front, only one policy change was announced which was a planned cap on the amount of payable tax credit that can be claimed under the SME R&D tax credit scheme. This will be set at three times the company’s total PAYE and NI payment for the period, and will take effect for accounting periods beginning on or after 1 April 2020. The reason given for the change is to prevent abuse of the system, with HMRC having evidence of corporate structures being set up purely to claim the cash repayments despite little genuine employment or activity being undertaken in the UK, as well as fraudulent claims where no legitimate R&D activity was undertaken. A similar measure was abolished in 2012, and the change may adversely affect some companies with genuine R&D activities undertaken by fellow group companies or other third parties, where the claimant company has low PAYE and NI liabilities relative to their R&D spend. HMRC claim that 95% of companies claiming the payable credit will be unaffected, and will offer the chance for interested parties to comment on the proposed changes via a formal consultation.
It will be interesting to see whether, post-Brexit, the government will consider more substantive changes to the R&D tax credit scheme, possibly through increasing the rates of credit or making the scheme more UK-territorial, in an attempt to attract overseas R&D investment into the country.
Overall, some interesting changes, with the introduction of the SBA being the stand-out item. Businesses should factor these tax changes into their capex forecasting, and ensure that they are taking expert advice to maximise their tax savings across the wide range of available incentives.
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