The Summer Budget, as everyone called it, was George Osborne’s first opportunity, since becoming Chancellor of the Exchequer in 2010, to present an undiluted Conservative Budget. Many of the announcements had been trailed in the press in the lead up to his despatch box address but that did not mean there wasn’t a few surprises in that famous red box of his.
Some of the key measures announced in the Budget statement are –
Annual Investment Allowance
The Annual Investment Allowance (AIA) provides taxpayers with a specified amount of tax relief for investment in plant and machinery (P&M). Generally, capital allowances for plant and machinery are given over time to ensure the tax life of an item resembles the useful economic life.
The limit, since the introduction of AIA seven years ago, has changed four times but now the Chancellor has finally realised that it is helpful for those planning investment to have a degree of certainty. To this end, from 1st January 2016 the AIA limit will be fixed at £200,000 for qualifying expenditure incurred on plant and machinery each year.
Corporation Tax Rate
Fixed at 20% since April 2015, the UK currently offers the lowest corporation tax rate across the G7. The Chancellor announced that the rate of corporation tax would reduce to 19% from 1 April 2017 and 18% from 1 April 2020.
Rental Property – Allowable Expenses
From April 2016, Wear and Tear Allowance will be replaced by a new system. Under the current rules, landlords of furnished properties are allowed to deduct 10% of their rental income in calculating taxable profit, regardless of how much is actually spent on furniture during the year. This will be changed so property owners can only deduct the real costs incurred on replacing furnishings.
A technical consultation will be published later in the year to consider this further but this will have considerable implications on the student accommodation sector in particular.
Judging by the expansion of this incentive to invest in specific areas of the country it would appear that Enterprise Zones could be considered a success. This again is demonstrated by the Chancellor’s invitation to smaller towns and rural areas across England to apply for Enterprise Zone status.
R&D Tax Relief
Following the introduction of the R&D Expenditure Credit (‘RDEC’) legislation, institutes of higher education and charities have submitted claims for cash payments from HMRC for expenditure incurred on research undertaken on science and technology. An amendment will be made to the legislation to exclude these bodies from the RDEC regime by categorising them as ‘ineligible companies’. This will affect universities and charities who are undertaking research in the field of science and technology. The change applies to expenditure incurred from 1 August 2015.
Several other policy announcements grabbed the headlines but we certainly cannot complain at another penny off a pint of beer, cheers!