Capital Allowances: Reduction of rate of special writing down allowance
Published 29 October 2018
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Who is likely to be affected
Businesses investing in plant and machinery which qualifies for the special rate writing down allowance.
General description of the measure
This measure reduces the rate of writing down allowance on the special rate pool of plant and machinery from 8% to 6%.
No other part of the Capital Allowances Act (CAA) 2001 is affected by this measure.
Policy objective
Reducing this rate will mean that businesses continue to receive full tax relief to reflect the depreciation of plant and machinery assets, but over an extended timeframe.
Background to the measure
This measure was announced at Budget 2018.
Capital allowances allow businesses to write off the costs of capital assets, such as plant or machinery, against their taxable income. They take the place of commercial depreciation, which is not allowed for tax.
Special rate expenditure includes expenditure on long-life assets, thermal insulation, integral features and expenditure incurred on or after 1 April 2018 on cars with CO2 emissions of more than 110 grams per kilometre driven.
This measure does not change the writing down allowance on the main pool which is currently 18%, nor does it change the writing down allowance on the special rate pool for ring fence trades which is currently 10%.
This measure is introduced in conjunction with a new permanent Structures and Buildings Allowance which will support business investment and improve the international competitiveness of the UK capital allowances regime.
Detailed proposal
Operative date
The new rate will be effective from:
- 1 April 2019 for businesses within the charge to Corporation Tax
- 6 April 2019 for businesses within the charge to Income Tax
For businesses whose chargeable period spans 1 April (corporation tax) or 6 April (income tax), a hybrid rate will have effect for unrelieved expenditure in the special rate pool.
The hybrid rate will be based on the proportion of a chargeable period falling before the change date and the corresponding proportion falling after the change date.
Current law
The current law is in found within part 2 of CAA 2001.
The special rate of plant or machinery writing down allowance is currently 8% per annum on a reducing balance basis.
Proposed revisions
Legislation will be introduced in Finance Bill 2018-19 to the special rate of writing down allowance which will be changed from 8% to 6%.
The legislation will be changed by substituting 8% with 6% in the following sections of CAA 2001:
- section 104D(1)
- section 56(2)(a)
- the heading of section 104D
- section 104E(1)(a)
The law remains unchanged for ring fence trades, which will retain the 10% writing down allowance rate for the special rate pool.
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2034 to 2024 |
|---|---|---|---|---|---|
| +75 | +250 | +360 | +325 | +315 | +305 |
These figures are set out in Table 2.1 of Budget 2018 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2018.
Economic impact
This measure will have a small, negative impact on business investment.
Impact on individuals, households and families
This measure has no impact on individuals as claiming capital allowances and reducing the rate of writing down allowance are business measures.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be any impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will impact 240,000 businesses qualifying for capital allowances not covered by a valid claim for Annual Investment Allowance (AIA).
It’s anticipated that many businesses will not be affected by the decrease in the capital allowance rate and will be able to claim for all expenditure in the year which it is incurred using their AIA entitlement.
However, businesses still claiming capital allowances for expenditure incurred in earlier years or who claim capital allowances for any expenditure not covered by the AIA may be adversely affected by the decrease in the capital allowance rate.
The impact on admin burdens is expected to be negligible as businesses will be making capital allowances calculations in the same way as before.
One-off costs may include familiarisation with the new rules and updating software to reflect the new rate. It is not expected that there will be any ongoing costs.
There is no impact on civil society organisations. There is no impact on ring fence trades.
Operational impact (£m) (HMRC or other)
The additional costs for HMRC implementing this change are estimated to be in the region of £68,000.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected on tax returns.
Further advice
If you have any questions about this change, contact Behroz Rustumji on Telephone: 03000 585921 or email behroz.rustumji@hmrc.gsi.gov.uk.