The government sticks to its plans on the AIA limit, but there was no new help for decarbonisation costs and we're still waiting on capital allowances reform.
The government is sticking to its earlier commitment to raise the level of the annual investment allowance (AIA) from £200,000 to a new permanent level of £1m from April 2023. This means that corporate businesses paying 25% tax and incurring at least £1m annually on plant and machinery will benefit from an additional annual tax saving of between £164,000 and £188,000 from April 2023 depending on the type of plant and machinery included within the AIA claim. For income taxpayers, the additional tax saving on their business profits could be as high as £338,400 if the claim for AIA included only special rate plant that would otherwise attract a 6% writing-down allowance. The total cost of the permanent increase to the AIA is estimated at £6.86bn for the period from April 2023 to April 2028.
As the corporation tax rate is increasing to 25%, the previously announced amendments to the super-deduction rules, to ensure that the relief continues to operate as intended, will not be required.
It was expected that the investment zones announced by previous Chancellor Kwasi Karteng would be scrapped despite many local authorities’ expressions of interest. Instead, the government announced that the focus would change, with Hunt declaring ‘leveraging our research strengths, to help build clusters for our new growth industries’. The programme will catalyse a limited number of these clusters, with further detail on the tax benefits, including capital allowances, still awaited at the date of publication.
It is worth noting that the government has still not responded to the feedback received to its policy paper published on 9 May 2022 on the reform of capital allowances. The consultation closed on 1 July 2022 and the government had previously stated that a summary of stakeholder feedback, together with their intended response, would be announced in the Autumn Statement; however, there was no hint of any proposed changes, which is perhaps unsurprising given the disruption of September’s ‘mini-Budget’.
Finally, it was a further fiscal event without any assistance for taxpayers as part of the net carbon zero agenda; a disappointment again that no specific tax measures were put in place around decarbonisation of our built environment, despite extensive lobbying from industry. Given that the chancellor declared the government’s ambition to achieve a 15% reduction in energy consumption from buildings and industry by 2030 (against 2021 levels), it would have been reasonable to assume that assistance would be provided through the tax system.
We have long argued that businesses could be encouraged to embrace energy efficiency measures through fiscal incentives. There is still no replacement for the enhanced capital allowances (ECA) scheme that was available for expenditure on energy efficient plant and machinery and water saving technologies that was repealed from April 2020. Previously 100% first year allowances (FYA) were available for such expenditure, but the scheme was deemed too complicated. However, notwithstanding the perceived limitations of the previous ECA scheme, the capital allowances regime seems an obvious area to encourage energy efficiency measures. We therefore look forward with interest to the government’s eventual response in respect to the reform of capital allowances.
In the meantime, the government announced that it will legislate in Spring Finance Bill 2023 to extend the 100% FYA for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes. It would therefore seem that when the rules for FYA are simple to understand and the expenditure readily identifiable, the government accepts that the incentive works as intended.
Otherwise, we wait to see how the newly created Energy Efficiency Taskforce (EETF) will oversee an additional £6bn of funding between 2025 and 2028 but suspect this will be through direct spending or grants rather than tax measures.
Home >Articles > Autumn Statement 2022: capital allowances
Autumn Statement 2022: capital allowances
The government sticks to its plans on the AIA limit, but there was no new help for decarbonisation costs and we're still waiting on capital allowances reform.
The government is sticking to its earlier commitment to raise the level of the annual investment allowance (AIA) from £200,000 to a new permanent level of £1m from April 2023. This means that corporate businesses paying 25% tax and incurring at least £1m annually on plant and machinery will benefit from an additional annual tax saving of between £164,000 and £188,000 from April 2023 depending on the type of plant and machinery included within the AIA claim. For income taxpayers, the additional tax saving on their business profits could be as high as £338,400 if the claim for AIA included only special rate plant that would otherwise attract a 6% writing-down allowance. The total cost of the permanent increase to the AIA is estimated at £6.86bn for the period from April 2023 to April 2028.
As the corporation tax rate is increasing to 25%, the previously announced amendments to the super-deduction rules, to ensure that the relief continues to operate as intended, will not be required.
It was expected that the investment zones announced by previous Chancellor Kwasi Karteng would be scrapped despite many local authorities’ expressions of interest. Instead, the government announced that the focus would change, with Hunt declaring ‘leveraging our research strengths, to help build clusters for our new growth industries’. The programme will catalyse a limited number of these clusters, with further detail on the tax benefits, including capital allowances, still awaited at the date of publication.
It is worth noting that the government has still not responded to the feedback received to its policy paper published on 9 May 2022 on the reform of capital allowances. The consultation closed on 1 July 2022 and the government had previously stated that a summary of stakeholder feedback, together with their intended response, would be announced in the Autumn Statement; however, there was no hint of any proposed changes, which is perhaps unsurprising given the disruption of September’s ‘mini-Budget’.
Finally, it was a further fiscal event without any assistance for taxpayers as part of the net carbon zero agenda; a disappointment again that no specific tax measures were put in place around decarbonisation of our built environment, despite extensive lobbying from industry. Given that the chancellor declared the government’s ambition to achieve a 15% reduction in energy consumption from buildings and industry by 2030 (against 2021 levels), it would have been reasonable to assume that assistance would be provided through the tax system.
We have long argued that businesses could be encouraged to embrace energy efficiency measures through fiscal incentives. There is still no replacement for the enhanced capital allowances (ECA) scheme that was available for expenditure on energy efficient plant and machinery and water saving technologies that was repealed from April 2020. Previously 100% first year allowances (FYA) were available for such expenditure, but the scheme was deemed too complicated. However, notwithstanding the perceived limitations of the previous ECA scheme, the capital allowances regime seems an obvious area to encourage energy efficiency measures. We therefore look forward with interest to the government’s eventual response in respect to the reform of capital allowances.
In the meantime, the government announced that it will legislate in Spring Finance Bill 2023 to extend the 100% FYA for electric vehicle charge points to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes. It would therefore seem that when the rules for FYA are simple to understand and the expenditure readily identifiable, the government accepts that the incentive works as intended.
Otherwise, we wait to see how the newly created Energy Efficiency Taskforce (EETF) will oversee an additional £6bn of funding between 2025 and 2028 but suspect this will be through direct spending or grants rather than tax measures.
