The government wants to encourage businesses to invest in plant and equipment to help them grow their operations and operate more efficiently. Where the cost of those items qualifies for the annual investment allowance (AIA), 100% of the expenditure is set against profits in the year of purchase, so the business gets an immediate benefit.
The AIA is currently capped at £200,000 per company or group. However, the cap will be raised to £1 million per year for equipment purchased in 2019 and 2020. When investment is made in buildings, the cost cannot be set against business profits, as there are no capital allowances available for commercial buildings other than those used for R&D.
The Chancellor has bridged that gap by introducing new structures and buildings allowance (SBA) to apply to the cost of constructing non- residential buildings on and after 29 October 2018. The allowance will allow 2% of the building’s cost (excluding land) to be deducted each year.
If the building is sold during its 50-year “tax life”, the unclaimed allowance will be available to the purchaser. The cost of the building’s fittings and integral features (such as lifts) can be claimed as part of the AIA, up to that annual limit. Any excess expenditure must be claimed through the special rate pool which currently provides an 8% allowance. This special rate allowance will be cut to 6% from 1 April 2019.
The 100% capital allowances for expenditure on energy or water efficient equipment will cease from 1 April 2020. However, the 100% allowance for electric vehicle charging points will apply for costs incurred up to 31 March 2023.