INCREASED CAPITAL ALLOWANCES
Increased Capital Allowance started on the 1st of January 2019. The Chancellor announced a temporary increase in the Annual Investment Allowance (AIA) in the Autumn Budget. This is for expenditure on plant and machinery to £1 million. However, transitional rules mean that the full amount will not necessarily apply to your business straight away.
For example, if your business year end is 30 June 2019 the maximum AIA would be £600,000. This being 6/12 x the old £200,000 limit plus 6/12 x the new £1 million limit. The following year to 30 June 2020 would be entitled to the full £1 million.
NEW CAPITAL ALLOWANCE FOR COMMERCIAL BUILDINGS
There’s a new 2% straight line tax deduction for the cost of construction or renovation of commercial buildings and structures. HMRC have now issued a technical note setting out the details for the operation of the new relief.
The old Industrial Buildings Allowance was available for factories and warehouses. The new relief is available for the construction of shops and offices as well.
The new tax break is available where the contract starts and construction costs are incurred on or after 29 October 2019. The capital allowance is available to commercial property landlords as well as trading businesses. There are special rules for leasehold buildings which determine whether the landlord or tenant is entitled to the allowance.
More generous plant and machinery allowances are available for fixtures and fittings within the building. The AIA referred above would mean that there may be 100% capital allowances for equipment such as central heating and air conditioning.
CAPITAL ALLOWANCE ON HIGH CO2 CARS AND ASSETS IN SPECIAL RATE POOL REDUCES TO 6%
Another capital allowance change announced in Autumn was the reduction of the writing down allowance on assets in the special rate pool. This will be from 8% to just 6% per annum reducing balance from April 2019. Included are long life assets such as aircraft, integral features within buildings and cars emitting over 110g CO2 per kilometre.
A claim for the 100% AIA can be made for expenditure on these assets resulting in faster tax relief. Please note that motor cars are an exception to this.
Where a company buys a motor car that emits more than 110g CO2 per km it will take years to get relief for the expenditure. Even when the car is sold the proceeds are deducted from the special rate pool. They then continue to be written down at 6% reducing balance.
Global Ltd which makes up accounts to 31 March each year buys a new Mercedes E220d AMG line for the managing director Mr Global for £40,000. As the CO2 emissions are 127g per km the WDA would be 8% for year ended 31 March 2019 = £3,200 leaving a tax written down value of £36,800. The 6% WDA would then apply for year ended 31 March 2020 = £2,208 leaving £34,592.
If the car was sold for £25,000 in the following year then the remaining balance of £9,592 would continue to be written down at 6% per annum, hence a very long write off period.
It may be more tax efficient to lease such a vehicle. Although 15% of the lease rentals are disallowed for tax purposes for such high CO2 vehicles, this may nevertheless be more beneficial.
Note that the above rules operate differently where the motor car is acquired by a sole trader or a partner for his business as the car is not included in the pool and a balancing adjustment occurs when the car is sold.