There is good news in the recent Budget for businesses looking to invest, writes Rebecca Lawson, Corporate Tax Manager at Booth Ainsworth. At the same time, it's worth discussing the small print with your accountant.

The October Budget saw the Annual Investment Allowance (AIA) increase from £200,000 to £1 million for a two-year period. At the same time, a new 2% Structures and Buildings Allowance (SBA) was introduced for new non-residential construction projects. Taken together, these tax breaks provide an excellent incentive for businesses to invest on a large scale.

Thanks to the announcement by the Chancellor, if you don't have sufficient AIA remaining of the £200,000 to cover eligible capital expenditure, there's a new option. You can defer the expenditure until the two-year period that starts on 1st January 2019, taking full advantage of the increase and obtaining immediate relief. That's because once the allowance has been fully used up, any further capital expenditure on plant and machinery will only attract writing-down allowances.

As the rules for recognition of capital expenditure for tax purposes are complex, it's important to take advice from your accountants.

The Structure and Buildings Allowance (SBA) for new non-residential structures and buildings will be provided on eligible construction costs that your business incurs on or after 29 October 2018. It's set at an annual rate of two per cent on a straight-line basis once the property is brought into qualifying use.

The aim of the SBA is to relieve the costs of physically constructing new structures and buildings and to encourage investment. It can also be used for the improvement of existing structures and buildings, including the cost of converting premises for use in a qualifying activity. These assets are already depreciated in many businesses' accounts, but until now without tax relief being given on all the expenditure.

Here are some of the key points to note:

  • The SBA applies regardless of any changes in ownership; there will be no balancing adjustments on sale.
  • The building or structure must be used in a trade, profession, vocation, UK or overseas property businesses that is an 'ordinary' business for the purposes of the Capital Allowance Act 2001 or in managing the investments of a company with investment business, within seven years of the expenditure.
  • Expenditure on renovations or conversions of existing structures or buildings will qualify
  • Expenditure on dwellings or buildings that function as dwellings will not qualify, including home offices which are an integral part of the the home. There will be a consultation on the definition of a dwelling, but hotels and care homes will qualify.
  • It's important to note that SBA expenditure will not qualify for the AIA.
  • Another restriction is over expenditure on land or the acquisition of rights to land. These do not qualify for relief. Neither do legal costs and stamp duty or any costs attributable to the obtaining of planning permissions, including the costs of public inquiries.

Where your business develops the structure or building itself, rather than acquires it, you can claim relief on the cost of any land preparation necessary for construction. If it's the case that the structure or building has been acquired from a developer, then an apportionment of the purchase cost from the developer will be required in order to separate the amount of the costs that is attributable to the land. The eligible costs will be the overall acquisition costs less the value of the land acquired.

Once again, because of the technical nature of the regulations, it is a good idea to discuss your plans with a professional adviser. Rebecca Lawson can offer corporate tax advice and can help with matters on this subject. Please contact her via email or direct dial 0161 475 1577.