Spring Statement for R&D and Capital Allowances Tax Relief Claimants..

Machinery - Capital Allowances tax Relief

We have some good news for R&D and Capital Allowances tax relief claimants, as delivered in the chancellor’s recent statement. The Spring Statement was filled with so many announcements that it sounded more like a mini-Budget.

For innovating companies hoping to benefit from R&D tax relief, there was a steady stream of disclosures that look set to improve the ability of companies to claim. We already knew, following last autumn’s Budget, that data and cloud computing costs were going to be included in the R&D tax relief scheme from April 2023. However, now the Government will go even further, making data storage costs and pure mathematics allowable expenses too. The latter has been introduced in recognition of the increasing importance of high-level mathematics to many technological advances.

Of course, the major announcement last autumn had been that overseas qualifying costs would be restricted to encourage companies to invest more at home in the UK. This was a worthy aim but there were some concerns that companies with legitimate reasons for investing in R&D overseas would be unfairly penalised. The Government has produced an answer for that. Exceptions will apply that promise to protect those companies deploying funds overseas where there are good reasons they can’t do so in the UK. These will centre on material conditions that are required for research but are not available in the UK, whether that’s geographic or environmental factors (such as deep ocean research) or related to aspects of population. Where companies face regulatory or legal requirements to carry out R&D activity outside the UK, for example with clinical trials, these qualifying costs will still be permitted.

Capital Allowances, the UK’s system of tax reliefs for fixed plant and machinery, also looks set to be made more generous. The Chancellor has floated a series of possible changes in the knowledge that, once the ‘super deduction’ tax relief for business investment ends, the Capital Allowances regime in its current state would make the UK one of the least generous capital investment tax landscapes in the world. The ‘super deduction’ is the most generous business investment tax relief ever introduced in the UK, giving businesses 25p back for every £1 they spend on qualifying machinery and equipment. However, the super deduction will end in April 2023.

Among the proposed Capital Allowance improvements, the Government has said it is considering:

  • Increasing the permanent Annual Investment Allowance level
  • Increasing Writing Down Allowances for main and special rate assets by 2 percentage points
  • Introducing a First Year Allowance for main and special rate assets
  • Introducing an Additional First Year Allowance so the overall claim amount will exceed the initial cost
  • Introducing full expensing so businesses can write off the costs of qualifying investments in one go

Which of these proposals actually enter the legislation will become clear when the Chancellor delivers his Budget in the autumn.

For more information of Tax Relief Schemes please get in touch.