Annual Investment Allowance
As expected, the Chancellor introduced some tax measures to stimulate investment in UK businesses. The Annual Investment Allowance (AIA), which provides 100% tax relief on capital expenditure, is being increased from £200,000 per annum to £1 million per annum for a two-year period from 1 January 2019. This is estimated to cost the government circa £1.2 billion in the two-year period but as apparently only 1% of businesses exceed the current AIA threshold, this suggests that businesses are expected to accelerate expenditure as a result.
Structures and buildings allowances
A new capital allowance (akin to the old industrial buildings allowance) is being introduced to give a 2% capital allowance for qualifying expenditure on structures and buildings incurred from today’s date.
Special writing down allowance
To pay for the above new allowance, the writing down allowance rate for the special pool of capital allowances (typically long life assets such as property fixtures) will be reduced from 8% to 6%. This is apparently in line with the typical depreciation rate for this type of asset.
First year allowances
The 100% first year allowances for energy and water-efficient equipment are being discontinued with effect from April 2020 whilst these allowances for electric charge-points will be extended until April 2023.
New intangibles relief
HMRC has confirmed there will be a reintroduction of some form of tax relief on goodwill acquisition as well as extending the degrouping relief to assets in the intangible assets regime. The draft legislation has not yet been published but the changes are to be effective from 7 November 2018.
New capital loss restriction
Company capital losses will be restricted from April 2020 (in line with the recent restrictions to income losses) such that only 50% of annual capital gains can be sheltered by carried-forward capital losses. This is likely to have a significant impact on large property investment groups who don’t qualify for the substantial shareholdings exemption. The £5 million annual allowance which exempts the first £5 million from this 50% restriction will now apply across income and capital losses.
Digital services tax
Whilst not relevant to most businesses, as predicted, the Chancellor took action to introduce a new 2% tax on revenues relating to specific digital business activities involving UK users. A business will only be impacted if it has £500+ million global revenues and there are various other tests which will restrict the scope of this tax. On the basis that the government forecast that this will only raise circa £400m per annum this is unlikely to provoke a massive backlash from the Silicon Valley giants!
Other corporation tax changes
Changes are being introduced to catch overseas groups who seek to abuse the ’permanent establishment’ rules in the UK to avoid creating a UK taxable presence. In a similar vein, new measures are to be introduced from April 2019 to charge UK income tax on royalties charged on offshore intellectual property structures (similar to the scheme for UK properties owned by non-resident landlords). There are also various technical changes on hybrid capital instruments and Diverted Profits Tax.