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With deadlines approaching in 2020, it’s never been more important to ensure you’re taking advantage of the available opportunities.

The Manufacturing team at accountancy association MHA release a quarterly series called The Engine; these provide a national outlook on the issues facing the manufacturing market.

An overview
Businesses rely on the capital allowances regime to obtain tax relief when purchasing assets. The Autumn 2018 Budget saw big changes in the capital allowances landscape:

• The Annual Investment Allowance (AIA) was temporarily increased to £1 million
• The Structures and Buildings Allowance (SBA) was introduced
• The government announced the scrappage of the Enhanced Capital Allowances (ECA) regime
• The special rate pool Writing Down Allowance (WDA) will reduce to 8% from 6% from April 2020

All of these have had significant implications for clients of all sectors, and several will be ending within the year.

Increase in the AIA
The government announced a temporary increase in the AIA from £200,000 to £1 million in the Autumn 2018 budget lasting until December 31st 2020. After this, the allowance will revert to £200,000.

Given current uncertainty surrounding the future longevity of the increase, if your business is planning a significant capital project it is best to discuss this with your adviser and carry out the project sooner rather than later. While the government may opt to extend the increase to further encourage growth in British industry, it is worth taking advantage of the opportunities now. 

To businesses across the country, the increased AIA is very much welcomed and has accelerated relief for numerous businesses across the UK. As we are unsure of the future of the increased relief, our recommendation to clients at present is to bring forward any large capital projects, and where possible span multiple years to further accelerate and maximise the relief available. As always, if you are considering carrying out any significant projects or acquiring new plant and machinery, we are able to provide advice in all steps of the process.

Addition of the SBA
Another new regime is the Structures and Buildings Allowance (SBA), which operates under a similar basis as the now defunct Industrial Buildings Allowance (IBA). This regime provides relief for capital expenditure incurred on all non-residential structural and building works which are not covered under the general plant and machinery allowances. This attracts a 2% writing down allowance on a straight-line basis over 50 years. 

From an investor’s perspective, this can be a double-edged sword as through claiming the allowance you are reducing the base cost of the building and increasing the potential chargeable gain on disposal. However, from an owner-occupier’s perspective this is something which would normally be unobtainable and a welcome source of relief. 

For clients who tend not to relocate frequently this source of relief is very much welcomed and is something which should be discussed with one of our specialists.

Abolition of the ECA regime
The most significant change to the regime over the coming months is the scrapping of accelerated relief for environmentally beneficial plant and machinery. The ECA provides 100% first year allowances for the purchase of environmentally beneficial assets, or assets which contain environmentally beneficial components. 

The relief will cease to exist for companies on March 31st 2020 and
individuals on April 5th 2020. This means any expenditure incurred before these dates will qualify, so if you are considering the purchase of new machinery which may contain components which qualify for the accelerated relief it is advisable to speak to us about your purchase and we can provide advice from the outset.

Reduction in the WDA
Another change on the horizon that both companies and individuals should be aware of is that the WDA available on items in the special rate pool will be reduced from 8% to 6% as of April 1st 2020 for companies and April 5th 2020 for individuals.

This change will affect all items currently in the special rate pool for periods ending after the dates mentioned above. If a business is planning a significant amount of expenditure on goods that would fall into the special rate pool, and they qualify for AIA, it is worth considering purchasing them prior to the AIA reduction before December 31st 2020.

Get in touch
Capital allowances are a complex area of tax law. Our friendly advisory tax team are able to provide advice on maximising claims on expenditure which qualifies for ECAs, structures and buildings and the timing of plant purchases to obtain the maximum relief available. 

For more information, get in touch by calling 01293 227670 or visit www.carpenterbox.com

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