Temporary working capital

New temporary tax breaks on eligible fixed asset investments from April 1, 2021

Who is likely to be affected

Companies subject to corporation tax that invest in plant and machinery from April 1, 2021.

General description of the measure

This measure will temporarily introduce increased relief for equipment and machinery expenses. For eligible expenses incurred from April 1, 2021 to March 31, 2023 inclusive, companies can claim during the investment period:

  • a super-deduction providing for rebates of 130% on most new investments in plant and machinery which normally give entitlement to rebates from the main rate of 18%
  • a 50% first year allowance on most new investments in plant and machinery which normally qualify for special rate reduction allowances of 6%

The measure also temporarily changes the rules relating to expenses incurred for plant and machinery used in part in a closing trade in the oil and gas sector.

Policy objective

This measure aims to stimulate business investment. It does this by providing a greater incentive to invest in plant and machinery by offering higher relief rates than before.

Context of the measure

Capital deductions allow businesses to deduct the costs of tangible capital assets, such as plant or machinery, from their taxable income. They replace commercial depreciation, which is not an eligible tax deduction.

The first year allowances allow higher relief rates for certain investments in plant and machinery, provided that the claims are made during the period in which the expenditure is incurred. The super-deduction is a subsidized allowance for the first year providing an allowance in excess of the cost of the asset.

Detailed proposal

Operative date

The measure will apply to eligible expenses from April 1, 2021 and will exclude expenses incurred on contracts concluded before budget day on March 3, 2021.

Current law

Part II of the Capital Allocations Act 2001 (CAA 2001) sets out the current Plant and Machinery Compensation Act.

The eligible expenses of the first year are currently included in Chapter 4, Part 2, CAA 2001 and the allowances for these expenses set out in Article 52, Chapter 5, Part 2 CAA 2001.

General exclusions from first year allowances can be found in Article 46.

Chapter 5 contains provisions on pooling, transfer events and transfer values.

Chapter 17 contains anti-avoidance provisions that apply to first year benefits.

Proposed revisions

A law will be introduced in the 2021 finance bill to amend Part 2 of the 2001 CAA to introduce the super-deduction, a 130% first-year allowance for prime-rate assets and a first-year allowance 50% for special rate assets.

Certain expenses will be excluded. The general exclusions of s46 will apply. In addition, there will be exclusions for second-hand and second-hand assets and expenses on contracts entered into before March 3, 2021, even if the expenses are incurred after April 1, 2021. Assets used entirely in a trade Fencing will be excluded from the super-deduction because they already have a 100% abatement, with assets used in part in a closing trade temporarily qualifying for a 100% abatement in the first year. Installation and machinery expenses incurred under a rental or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.

The super-deduction rate should be allocated if an accounting period overlaps April 1, 2023. The rate should be allocated on the basis of the days preceding April 1, 2023 over the total number of days in the accounting period.

Changes will be made to Chapter 5 to introduce new disposition rules that will apply to assets that have been claimed for these allowances. Disposal revenues should be treated as balancing charges (taxable profits), instead of being transferred to pools. The calculation includes rules that treat only part of the disposal receipt as a balancing charge, if part of the initial expenses is claimed by these temporary endowments, or part is claimed by other capital endowments.

In addition, for assets that have been claimed as super-deduction, the transfer value for capital deduction purposes should take the transfer receipt and apply a factor of 1.3, except where transfers occur. during accounting periods straddling April 1, 2023, resulting in 1.3. This rule does not apply to the 50% allowance in the first year for special rate expenses.

An anti-avoidance provision applies to netting arrangements that are contrived, abnormal, or lacking a genuine business purpose, and existing Chapter 17 rules apply, including the exclusion of related party transactions from primary quotas. year.

Summary of impacts

Impact on the Treasury (in millions of pounds sterling)

2020 to 2021 2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025 2025 to 2026
[-1,735] [-12,255] [-12,695] [-2,395] [+2,090] [+2,780]

These figures are presented in Table 2.1 of the 2021 budget and have been certified by the Office of Budget Responsibility. More details can be found in the policy costs document released with Budget 2021.

Economic impact

This measure will have a positive impact on business investment for the period during which it will apply. It will do so by lowering the tax-adjusted cost of capital for millions of businesses (large and small) that invest in qualifying plant and machinery equipment.

Impact on individuals, households and families

There is no impact on individuals because this measure only concerns companies. This measure is not expected to have an impact on the formation, stability or breakdown of the family.

Impacts on equality

It is not expected that there will be any impacts for people belonging to groups sharing protected characteristics.

Impact on businesses, including civil society organizations

This measure is expected to have a significant impact on around 2.8 million businesses that incur eligible expenditure on plant and machinery. One-time costs will include familiarization with the change and could include updating the software to account for temporary reliefs. The one-off cost for all businesses is estimated at £ 63million.

Ongoing costs could include taking the correct calculation into account when disposing of plant and machinery assets. The total ongoing administrative burden of business divestiture is estimated at £ 16 million per year. Costs could increase year on year as more companies divest themselves of these assets, but in the longer run these costs will be reduced to zero.

This could negatively impact the customer experience, as the change requires additional tax administration tasks to be performed when assets are transferred. In support of this, clear guidance will be provided in the capital allocation manual.

This measure is not expected to have an impact on civil society organizations.

The compliance cost estimates are presented in the following table:

Estimated one-time impact on administrative burden (in millions of pounds sterling)

One-off impact (In millions of pounds sterling)
Fresh 63
Savings

Estimated continuing impact on administrative burden (in millions of pounds sterling)

Continuous average annual impact (In millions of pounds sterling)
Fresh 16
Savings
Net impact on annual administrative burden +16

Operational impact (in millions of pounds sterling) (HMRC or other)

This measure will have an operational impact on HMRC, including staff resources and changes to IT systems and boards. Given that around 2.8 million businesses could apply for this relief, the costs are estimated at £ 10.2million.

Other impacts

Other impacts have been taken into account and none have been identified.

Monitoring and evaluation

The measure will be monitored thanks to the information collected from income tax returns and through regular engagement with companies and their representative bodies.

Other tips

If you have any questions about this change, please contact HMRC by email: [email protected]

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