Described by the Chancellor as "the biggest business tax cut in modern British history", a super deduction was announced in the Budget allowing companies to cut their tax bill by up to 25p for every £1 they invest in qualifying plant and machinery. This is a positive move from the Government which will position the UK's Capital Allowances regime as one of the most competitive in the world. Business rates relief for eligible retail, hospitality and leisure properties in England will also continue.

Capital allowances

The key announcement was the 130% super deduction for main rate pool assets and 50% First Year Allowance for special rate pool assets (including long life assets) for two years. This will apply from 1 April 2021 until 31 March 2023 for companies investing in qualifying plant and machinery.

To qualify for the super deduction or Special Rate Allowance, the plant and machinery must be new and unused, so will not apply to, for example, plant within the purchase of a second hand property, unless the building is bought unused.

If expenditure is a result of a contract entered into before 3 March 2021, the expenditure will not qualify for the new enhanced allowances. Where possible, therefore, companies planning on purchasing plant and machinery may wish to defer entering into contracts until after 1 April 2021 in order to benefit from the enhanced Allowances.

Annual Investment Allowance (AIA)

In November, the Government announced the extension of the temporary £1 million cap, until the end of 2021. This has not changed. The AIA allows businesses 100% tax relief on qualifying plant and machinery. (Note that whilst the super deduction only applies to companies, AIA will continue to apply for non corporates).

Enhanced Capital Allowances on energy and water efficient technologies

Disappointingly, the Government has not provided any clarity on what will replace the Enhanced Capital Allowances (ECA) scheme from April 2020. The big push towards a green economy should align both renewables and the built environment. Some form of incentive to increase the uptake in making new and current buildings more energy efficient would have been welcomed, and this may be included in the further tax announcements to be released on “Tax Day” on 23 March 2021.

Business Rates

The Government will continue to provide eligible retail, hospitality and leisure properties in England with 100% business rates relief from 1 April 2021 to 30 June 2021. This will be followed by 66% business rates relief for the period from 1 July 2021 to 31 March 2022, capped at £2 million per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for other eligible properties. Nurseries will also qualify for relief in the same way as other eligible properties.

When combined with Small Business Rates Relief, this means 750,000 retail, hospitality and leisure properties in England will pay no business rates for 3 months from 1 April 2021, with the vast majority of eligible businesses receiving 75% relief across the year.

The Government will legislate to ensure that the business rates relief repayments that have been made by certain businesses are deductible for corporation tax and income tax purposes. This will ensure that these businesses are no worse off from a tax perspective than if they had paid the business rates in the first place. This will apply for repayments made to the devolved administrations as well as to those made in relation to England.

We hope that the Scottish Government will respond positively to the announcements by Westminster and update their positions on business rates and LBTT to align.

Freeports

The government will create eight new Freeports in England, areas where businesses will benefit from more generous tax reliefs, simplified customs procedures and wider Government support. You should note:

• An enhanced 10% rate of Structures and Buildings Allowance for constructing or renovating non-residential structures and buildings within Freeport tax sites in Great Britain, once designated. This means firms’ investments will be fully relieved after 10 years compared with the standard 33 ¹/³ years at the 3% rate available nationwide. This will be made available for corporation tax and income tax purposes. To qualify, the structure or building must be brought into use on or before 30 September 2026.
• An enhanced capital allowance of 100% for companies investing in plant and machinery for use in Freeport tax sites in Great Britain, once designated. This will apply to both main and special rate assets, allowing firms to reduce their taxable profits by the full cost of the qualifying investment in the year it is made, and will remain available until 30 September 2026.

Discussions are to continue between the UK Government and the devolved administrations to ensure the delivery of Freeports in Scotland, Wales and Northern Ireland as soon as possible.