In the March 2021 Budget, the Chancellor made several announcements to encourage investment in business assets:
- Super deduction of 130% for brand new plant and machinery
- Super deduction of 50% for assets that qualify for the special rate pool, eg integral features
- Enhanced 100% capital allowances on plant and machinery used in freeports
- Enhanced 10% structure and buildings allowances (SBA) on buildings in freeports
Unfortunately, points 1 to 3 in this list are only available to companies. Businesses that operate as partnerships, LLPs, or sole traders can only get 100% deduction for investment if the asset qualifies for the annual investment allowance (AIA), or it qualifies for a different first year allowance, as say an electric car.
The AIA cap was due to reduce from £1 million to £200,000 on 1 January 2022. The Finance Bill has confirmed that the £1 million cap will remain in place until 1 April 2023, to match the period the super deductions are available for.
The second change in Finance Bill is to require amendments to the ‘allowance statement’ which is needed before a taxpayer can claim SBA for a commercial building.
This statement records the details of the qualifying expenditure on the building and when it was first brought into commercial use – and hence when the tax life of the building starts. If additions are made to the building later, the cost of the additions will have a different tax life for SBA purposes, and thus the allowance statement for the whole building needs to be amended.
Written by the Tax Advice Network