Chancellor Kwasi Kwarteng announced today the following which will have implications for capital allowances:
Annual Investment Allowance (AIA)
AIA ‘permanently’ set at £1m instead of reducing to £200k. Over the next 5 years this is estimated to save Tax payers £5bn.
19% Corporation tax rate retained. By scrapping the proposed tax increase to 25% this is estimated to save companies a total over 5 years, £68bn.
Adjusting Super-Deduction Rules
The government will amend some of the technical provisions for the super-deduction as a consequence of the Corporation Tax rate being retained at 19% from 1 April 2023. This will ensure that the relief continues to operate as intended. Currently there is no detail on this and we will comment further when details are available.
The government will work with the devolved administrations and local partners to introduce investment zones across the UK, potentially in 38 new zones.
Within the Investment Zones companies will benefit from Enhanced Allowances with
100% first year allowance for companies’ qualifying expenditure on plant and machinery assets for use in tax sites.
There will also be Accelerated relief to allow businesses to reduce their taxable profits by 20% of the cost of qualifying non-residential investment per year, relieving 100% of their cost of investment over five years.
Lovell Consulting Comment
The ‘permanent’ £1m AIA is positive and something Lovell Consulting has been lobbying for. The new investment zones are also welcomed. However, the comments about super deductions are vague and whether they are retained beyond April 2023 is a key uncertainty for investors. Further details are needed, hopefully in less than a month of Kwasi’s (Kwasi means born on a Sunday!)