CAPITAL ALLOWANCES TAX RELIEFS WHERE ARE WE NOW?

Ownacarehome talk to the experts at Jex Capital Allowances, an independent specialist capital allowance consultancy specialising in care home acquisition, construction, refurbishment and fitting out of investment care home properties. 

Jonathan Jex, Director at Jex Capital Allowances says: “Our extensive cost databases, up to date taxation, technical surveying construction knowledge and strong working relationship with HMRC places care home owners in the best position to maximise their tax advantage following capital expenditure in the Home.”

“We are Capital Allowance specialists maximising those hidden tax reliefs, providing valuable extra working capital cash flow and helping care home owners support continuous improvement in the care home provision for the long term.”

Capital Allowances – Budget Update

Jonathan continues: “The Spring Budget, on 15th March 2023, was always going to be a difficult balancing act between the need to balance the nations books and drive growth and productivity into the UK economy.”

“As widely expected, the Chancellor confirmed the removal of the temporary super-deduction capital allowance.  The super-deduction had been in place from April 2021 to 31^st March 2023 for companies investing in qualifying new plant and machinery; this allowed a 130% super-deduction on qualifying plant and machinery “main pool” items and a 50% first year allowance for qualifying special rate assets. This had been an unusually generous provision at the time and was aimed at encouraging businesses, including the care home sector to invest post-Covid.”

“In addition, we already knew that the headline corporation tax rate for companies would increase from 19% to 25% albeit a small profits rate of 19% would be reintroduced for companies with profits of £50,000 or less. With all the other additional increases of costs for the providers of care this will have a significant impact on the care sector.”

The Chancellor seeks to aid growth and investment

Jonathan says: “The super-deduction has been replaced with a new temporary allowance known as ‘full expensing’. Initially, this term was somewhat misunderstood by some, but what it means is that the full tax allowance on qualifying expenditure, equating to the actual cost of the asset, will apply for the year in which the assets are purchased.”

“The measure is stated as being temporary but there is a hope that this will be extended beyond the initial period of qualifying expenditure incurred on or after 1 April 2023 but before 1 April 2026.  In addition, the “special rate” expenditure, that doesn’t qualify for full expensing can continue to be claimed at the 50% first-year allowance (FYA).  This provision will now run to 31 March 2026.” 

Jonathan Jex looks at the ‘new tax reliefs’ at a glance

·         “100% first-year allowance for main rate e:xpenditure “full expensing”. Some example items of Plant and machinery that may qualify for full expensing in a Care Home setting include bathrooms, kitchens, security & fire system, and other specialist equipment.  The list continues and it is always best to talk to the experts in capital allowance tax relief.

·         50% first-year allowance for special rate expenditure. For example, assets may include heating, hot & cold water and general power & lighting systems.

It should be noted that full expensing is only available to companies subject to corporation tax and only applies to new plant and machinery (not used, or second-hand assets.)”

What does this mean in real terms?

Jonathan comments: “Whilst this is a reduction of headline tax relief, in real terms when we consider the interaction with the new corporation tax of 25%, the real cash terms will be broadly the same as the super-deduction scheme.”

“By deducting the cost of the investment in one year from taxable profits in the year that the expenditure is incurred, the company can achieve a tax saving of 25p for every £1 invested in new main rate plant & machinery (based on 25% corporation tax). For comparison under the super deduction of 130% and with corporation tax at 19%, the tax saving per £1 invested was 24.7p.”

Continuation of the Annual Investment Allowance (AIA)

To clear up any confusion Jonathan goes on to say: “Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m, applicable to both new and second-hand expenditure, also to both the main pool and special rate pool, against which the AIA should be utilised first and any remaining can then be used against the main pool.”

In conclusion

Jonathan Jex concludes: “Whilst not as beneficial as many first thought, we welcome the new capital allowance tax relief measures and certainly, businesses planning major investment in the Care Home sector will benefit from the announcement. 

In addition the Treasury has described the AIA of £1m as being made permanent which provides investors with a level of certainty, enabling longer term financial planning.”