Government proposes to overhaul capital tax deductions

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More generous capital allowances could be considered for agricultural businesses under government review.

A UK Treasury consultation is considering making the temporary increase in the Annual Investment Allowance (AIA) permanent.

This system currently allows businesses to claim up to £1million in tax relief in the same year for capital investment in plant and machinery.

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The level had been raised from £200,000/year to £1m/year between January 1, 2019 and March 31, 2023 to encourage investment, but an increase could be made permanent, although it may not be not as high as the current amount of £1m.

The government is also considering a permanent full expense, allowing all eligible expenses to be amortized in the year the expenses are incurred, and for this amount not to be capped.

The capital cost allowance consultation was announced in the government’s recent Spring Statement.

He has just published a paper aimed at “starting a conversation with business” about proposed changes to the UK’s capital allowances scheme.

Accountant Martyn Dobinson, partner at Saffery Champness, says consulting is as relevant to agriculture as it is to any other sector.

“The availability and extent of capital allocations can be a major influencing factor for rural businesses of all sizes in purchasing farm machinery, mills and other ‘big ticket’ items,” he says. .

Tax relief kit

Another option from the consultation that will influence decision-making in the agricultural sector is a proposal to introduce general first-year allowances (FYA) for eligible plant and machinery expenditure from 1 April 2023.

FYAs allow businesses to deduct a percentage of qualifying expenses in the year they are incurred.

One possibility being explored is to introduce blanket FYAs for qualifying plant and machinery expenditure – this could be at 40% for prime rate expenditure and 13% FYA for money spent on rate plant and machinery. special.

The government is also considering introducing an additional FYA, on top of the initial cost of the asset, to allow a percentage of eligible expenditure to be claimed in the year it is incurred, while 100% of such expenditure would still be available. to be grouped with the depreciation allowances (WDA) claimed in the usual way.

WDA rates for core assets, a system that allows companies to spread tax relief over several years, could also rise from 18% to 20%, and special rate assets from 6% to 8%.

The consultation closes 1 July 2022. Further information, including how to respond, is available on the gov.uk website.

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