In common with many recent Budgets and financial reviews, much of the big news from the 2022 Spring Statement had been leaked or anticipated beforehand, so the announcements of cuts in fuel duty, removal of VAT on energy efficiency improvements and changes to the National Insurance regime did not come as much of a surprise.
There certainly were some aspects to the statement which will help the rural economy, including the freezing of the business rates multiplier and a 50% relief for eligible retail, hospitality and leisure businesses. However, the more intriguing announcements did not immediately hit the headlines but will have a bigger impact in the future: it was announced that the basic rate of Income Tax will drop to 19% from April 2024, the first such cut in 16 years. Moreover, the paper recognised that, aside from the effect of the current “super deduction” for capital expenditure, which will end in April 2023, the relief for capital expenditure in the UK is somewhat lower than that given elsewhere in the OECD. In order to rectify this, and with the intention of increasing productivity, it is proposed that the whole system of capital allowances will be reviewed later this year.
The review will examine the costs/benefits of:
- Increasing the permanent level of the Annual Investment Allowance, for example to £500,000
- Increasing Writing Down Allowances for main and special rate assets from their current levels of 18% and 6% to 20% and 8%
- Introducing a higher First Year Allowance with the remaining expenditure written down by standard Writing Down Allowances
- Introduce a new form of “super allowance” to give first year relief at over 100% (and perhaps make it available to individuals and partnerships, not just limited companies)
- Introduce “full expensing”, to allow businesses to write off the costs of qualifying investment in the year of acquisition
- consider changes to other allowances, such as the Structures and Buildings Allowance, or new reliefs targeted at specific investments
Readers with reasonably long memories will have seen some of these types of relief in the past. It remains to be seen whether the whole cost of the super deduction would be passed on into new forms of relief, but it is encouraging that the chancellor recognises the importance of tax incentives to investment decisions. We will await an Autumn Budget with interest – and those who are not able to fit all their investment expenditure within the super deduction window may at least keep some hopes that a more generous regime is at least being considered for the future.
Commenting on the report MHA Agricultural Partner, Sarah Dodds remarked –
“As always, the devil is in the detail, but the prospect of bringing UK capital allowances into line with those of our competitors is an attractive one. I just hope that the chancellor remembers that most family farms are partnerships rather than limited companies and since their tax rates tend to be higher than those paid by the corporates it would be fair if they too could benefit from the same tax incentives.”
This article is a part of our dedicated Spring Forecast Statement hub. For more analysis and insight, please click here.
