Capital Allowances / Increase in rate of Structures and Buildings Allowances and technical changes
Published 11 March 2020
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Who is likely to be affected
Businesses incurring qualifying expenditure on non-residential structures and buildings newly constructed, or renovated, on or after 29 October 2018.
General description of the measure
Businesses that incur qualifying expenditure on the construction, renovation or conversion of non-residential structures and buildings may claim Structures and Buildings Allowances (SBA). From 1 April 2020 for the purposes of corporation tax and 6 April 2020 for the purposes of income tax, businesses may claim an increased annual allowance of 3%. Some miscellaneous amendments to the legislation are included to ensure it operates as intended.
Policy objective
The SBA aims to relieve the construction, renovation or conversion costs for new structures and buildings used for qualifying purposes over their lifetime. The increased rate of relief will further support business investment in constructing new non-residential structures and buildings including necessary preparatory costs, and the improvement of existing ones. The increased allowance will improve the international competitiveness of the UK’s capital allowances system.
Background to the measure
The SBA was announced at Budget 2018. Following extensive consultation, legislation in Part 2A Capital Allowances Act 2001 came into force on 5 July 2019 with effect from 29 October 2018.
Detailed proposal
Operative date
The new rate will be effective from:
- 1 April 2020 for businesses within the charge to corporation tax and
- 6 April 2020 for businesses within the charge to income tax
From the operative date, all businesses that bring into qualifying use a non-residential structure or building, where all the contracts for construction works were entered into on or after 29 October 2018, will be able to claim the new rate of 3% per year.
In addition, businesses that were entitled to claim the SBA for structures or buildings that were brought into use between 29 October 2018 and 1 April 2020, for corporation tax, or 6 April 2020, for income tax, can claim the new 3% rate from the operative date.
Businesses whose chargeable period spans 1 April (corporation tax) or 6 April (income tax), may claim 2% per year for days in that period before the operative date and 3% for days thereafter.
Current law
Current law is included in Part 2A Capital Allowances Act 2001, inserted by Statutory Instrument 2019 No 1087.
The current 2% per year rate will apply to the whole or part of chargeable periods in relation to days before the operative date.
Proposed revisions
Part 2A will be amended so that the new rate of relief is 3% per year from the operative date. This reduces the time it will take to relieve qualifying expenditure from 50 years to 33 and one third years. The technical changes ensure that the legislation allows relief for the first day of qualifying use, allows simplified calculations for all qualifying non-residential structures or buildings, prevents double relief where research and development allowances are available, includes oral construction contracts, clarifies apportionment of allowances and allowances on contributions towards another person’s costs. The revisions will be included in Finance Bill 2020.
Summary of impacts
Exchequer impact (£ million)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| -15 | -90 | -165 | -210 | -260 | -295 |
These figures are set out in Table 2.1 of Budget 2020 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure will have a positive impact on business investment.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects businesses who incur qualifying expenditure on new non-residential structures and buildings on or after 29 October 2018. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will have impacts for those in groups with protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a positive impact on businesses investing in non-residential structures and buildings. One-off costs may include familiarisation with the new rate of relief, updating software and training staff, and calculating relief separately for an accounting period which straddles the operative date.
Some businesses may be able to claim additional transitional relief for assets acquired at the 2% rate. Further one-off costs may therefore arise from keeping such a record, where they continue to own the asset till expiry of 33 and one third years from the date the asset was first used. Ongoing savings are expected to include fewer calculations as the relief will be calculated over 33 and one third years, instead of 50 years, which is expected to positively impact businesses.
Where civil society organisations invest in non-residential structures and buildings, they may choose to comply with evidence requirements so that, when they dispose of the asset, any subsequent owner may claim if entitled to do so.
This measure is expected overall to improve businesses experience of dealing with HMRC as claims will be filed over a shorter period, reducing their time spent on tax administration.
Operational impact (£) (HMRC or other)
HMRC operational costs for the implementation of this change are estimated at £50,000.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, please contact Behroz Rustumji on Telephone: 03000 585921 or email: [email protected]