The UK capital allowance system was introduced in April 2018 with the aim of encouraging businesses to invest in new equipment and machinery. This tax relief allows companies to claim back half of the costs of investing in plant and machinery up to £250,000. At the same time, it reduces the amount of income tax paid by those companies.
In 2020, the government announced the removal of the deduction entirely in 2021. Businesses had been able to take advantage of the superdeduction since 2010. However, the government argued that there was no longer a pressing need for such a generous incentive. Instead, it wanted to focus on helping small firms grow and creating jobs.
Never Had It So Good?
The UK government wants to encourage companies to invest in new technology. Businesses will be able to write it off against tax bills, while those investing over £1 million will pay a flat rate of 25% rather than the current 40%. The Chancellor is trying to bring down the deficit faster than originally planned. He wants to spend less on public services and raise taxation on people earning over £150k a month.
What Options Are Under Review?
The Chancellor announced his Autumn Budget today, including measures to help businesses grow and cut taxes. But he didn’t announce any changes to corporation tax rates. So what does it mean? We explain here…
What Happens Next?
The UK’s decision to leave the European Union has led to uncertainty about what happens next. Businesses are concerned about how Brexit will affect trade and investment, while consumers are worried about price rises and job losses. But there is some good news too – the government is consulting on changes to business rates, which could lead to lower bills for many companies.
Income tax is paid on profits earned by businesses, whether they are incorporated or unincorporated. In the case of unincorporated firms, income tax is levied at 28%. However, the amount of tax you pay depends on where you live. For example, in London, the standard rate of corporation tax is 20%, compared with 12% in Scotland.
Business rates apply to most commercial property, including offices, shops, factories, warehouses, showrooms, workshops and garages. They are charged according to the value of the building, rather than the land it sits upon.
Since April 2016, businesses have been paying business rates based on historical costs, rather than actual market values. This meant that businesses faced big increases in their bills, especially those with older buildings.
However, the government announced plans to review the way business rates are calculated in November 2017. The aim is to make sure that businesses are treated fairly, regardless of location or type of business.
Missing an Opportunity?
– Businesses miss out on tax relief because they don’t know what to do with it
Capital allowances were introduced in April 1616 to encourage businesses to invest money in equipment. They allow businesses to write off investments against profits over a period of up to 20 years. But there are concerns about whether the existing system encourages companies to invest enough in equipment. And some fear that the current system could discourage investment in the long term.
The Chancellor needs to introduce a better capital allowance scheme. This would help businesses make longer-term decisions about how much to spend on equipment. It would give them confidence that the government won’t change the rules midstream. In addition, a clearer set of rules would mean fewer opportunities for avoidance.
A truly bold step would be to create a new capital allowance regime – one that creates a benefit for those investing in machinery and equipment. Such a move would provide incentives for businesses to invest in assets such as factories, warehouses and offices. These investments will boost productivity and growth.
But creating a new capital allowance regime isn’t easy. It requires careful consideration of the costs and benefits of different options. So we want to hear from you. What would you like to see happen with capital allowances? Do you think a new capital allowance regime is needed? Or are you happy with the way things are now? We’d love to hear your views.
Please send us your comments and suggestions to:
What should companies do?
The United Kingdom is set to introduce a “supertax” on corporate profits next week. But what does it mean for businesses and investors? And how might it affect the economy?
In the short term, there are some attractive financial arguments for taking advantage of the current super-deduction. If you invest £10m in a project that generates £20m of profit over three years, you’ll pay no corporation tax on the first £5m of that profit. This allows companies to make large investments without having to worry about paying taxes on those profits. So why wouldn’t you do it?
But after 2024, the situation becomes much less clear. At that stage, the government plans to abolish the dividend allowance – meaning that dividends paid out to shareholders won’t be taxed. Companies would still be able to deduct the full amount of the dividend against their taxable income, but the government would lose revenue.
So while there are good reasons to make investments now, there are also good reasons to wait.
Using the “super deduction” will have tax effects in the future.
The government has announced changes to the way it calculates capital gains tax on disposals of assets held for less than 12 months. From April next year, taxpayers will no longer be able to claim a full capital gain on the disposal of assets held for up to six months. Instead, they will be allowed to deduct 30 per cent of the total value of the asset – known as the super deduction.
This change does not apply to assets disposed of after 1st April 2023. Assets disposed before 1st April 2023 will continue be subject to the normal Capital Allowances regime.
Taxpayers who dispose of assets held for between one month and six months will still be able to claim the full capital gain on the sale of the asset. However, they will now be eligible for a lower rate of tax on the part of the capital gain that exceeds the 30 per cent threshold.
Capital gains tax rates are set out in section 56 of the Income Tax Act. They vary depending on whether the taxpayer is resident or non-resident, and how long the asset was owned.
What will happen when the corporate tax rate goes up in 2023?
The federal government has increased the corporate tax rate to 15% effective January 1st, 2023. This change applies to both individuals and corporations.
In addition to the increase in the overall rate, there are several changes to how companies calculate their corporation tax liability. These include:
• An adjustment to the calculation method used to determine the base amount of taxable profit;
• Changes to the definition of “taxable profits”;
• New rules regarding losses incurred by foreign subsidiaries;
• A requirement to use the new rates for calculating the corporation tax liability before making any disposals;
• A reduction in the amount of capital gains that can be offset against other sources of income.
Tax payments and CGT returns are due in 60 days.
The deadline for filing Capital Gains Tax (CGT) returns and making any capital gains tax payments has been extended to July 31, 2019. This extension applies to both individuals and businesses.
Any capital gains tax payable on a sale must be paid by August 31st, 2019. If you are unsure whether you owe any capital gains tax, contact us today. Our team of experts will help you understand what you need to do to pay it.
Frequently Asked Questions
Who is eligible for the super-deduction?
The super-deduction allows businesses to claim up to £10,800 off their corporation tax bill, depending on how much profit they make. But it isn’t just limited to large companies – anyone paying corporation tax can do so. Sole traders and partnerships are excluded, however.
If I use the super-deduction, will I pay less tax?
The recent changes to capital gains tax rates mean investors will get a bigger cut from their portfolio profits. But how much does it actually matter? We asked experts to find out.
The overall picture looks good for those investing in shares, property and cash savings accounts. If you’re looking to invest in anything else, however, you might want to think again.
If you’ve got money invested in things like bonds, annuities and pensions, then there’s no real reason why you shouldn’t continue doing what you’re already doing. In fact, you’ll probably get a boost from the government’s decision to increase the capital gains tax discount.