Rishi Sunak’s recent Mais lecture hinted that he is looking at cutting taxes on business investment. He highlighted that capital investment by UK businesses averages 10% of GDP, lower than the current OECD average of 14%. He said, “As I develop a business tax strategy for the years ahead, it seems likely to me that a priority will be to cut taxes on business investment.”
ICAEW’s Tax Faculty highlights that businesses can currently benefit from a range of reliefs and deductions on their capital expenditure. The standard rates of capital allowances are 18% for plant and machinery on a reducing balance basis (6% for special rate expenditure, such as integral features or more polluting cars) and 3% on a straight-line basis for structures and buildings.
Enhanced rates of relief include:
- The annual investment allowance which allows a full deduction for the cost of qualifying plant and machinery (currently at an annual £1m limit until 31 March 2023, after which it is due to revert to £200,000).
- A 130% super deduction on qualifying plant and machinery by companies until 31 March 2023.
- 50% first-year allowances for special rate plant and machinery expenditure by companies until 31 March 2023.
- 100% first-year allowances for electric vehicle charging points by 31 March 2023 for companies within the charge to corporation tax and 5 April 2023 for businesses paying income tax.
- 100% first-year allowances for expenditure on new electric and zero-emission cars by 31 March 2025.
- 100% first-year allowances for expenditure on zero-emission goods vehicles by 31 March 2025 for companies within the charge to corporation tax and 5 April 2025 for businesses paying income tax.
- 100% first-year allowances for expenditure on plant and machinery for gas refuelling stations for refuelling vehicles with natural gas, biogas or hydrogen gas by 31 March 2025.
- 10% enhanced structures and buildings allowance rate on expenditure in designated freeport tax sites by 30 September 2026.
- 100% enhanced capital allowance rate for expenditure on plant and machinery in designated freeport tax sites by 30 September 2026.
ICAEW’s Tax Faculty observes that companies are currently more likely to claim the super-deduction on qualifying expenditure than first-year allowances. However, if they have an accounting period that straddles the 31 March 2023 end date for the super deduction, apportionment of the super deduction may mean that other allowances will deliver a better rate. This may also be the case where the company might dispose of the assets purchased at a profit in the future.
The faculty notes that when it comes to the UK’s net zero commitment, the allowances provide a choice between investing in electric vehicle and gas vehicle refuelling technology. The Chancellor may not want to extend the end dates of these allowances to ensure that businesses don’t delay investment in green vehicle fleets and charging/refuelling technology.
Regardless of whether the Spring Statement contains an announcement on capital allowances, join Anita Monteith, Head of Taxation Policy and other members of the Tax Faculty team at 14:00 on Thursday 24 March for our webinar discussion about the Spring statement which will break down the announcement. The webinar will be free to ICAEW members and Tax Faculty subscribers. Book here
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
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