Budget Resolution — Capital Allowances — Tax Breaks for Investing in Machinery and Green Technology — 29 Mar 2011 at 22:15

The majority of MPs voted for changes to the arrangements for tax relief for companies investing in assets; most significantly decreasing the Annual Investment Allowance (under which 100% of asset purchase can be deducted from taxable profits) from £100,000 to £25,000 (expected to raise an extra £1bn/year in extra taxes) and reducing the main rate of Capital Allowances (the fraction over the AIA which can be deducted) from 18 to 8 percent, which is expected to eventually raise an additional £1.7bn/year in extra tax. Either of these additional taxes alone more than outweighed the costs of the corporation tax cut.

The text of the approved motion was:

• That provision (including provision having retrospective effect) may be made about capital allowances.

The Budget^[1] had included various changes to capital allowances intended to make it more attractive for companies to invest in assets, particularly machinery and especially in the field of low carbon energy generation and energy efficiency.

The impact would be a reduction in taxation on companies making such investments.

Some of the specific measures included:

• To encourage investment in plant and machinery, the Government announces that, from April 2011, the limit on the capital allowances short life assets election will be extended from four to eight years, more closely aligning tax and economic depreciation. It will also extend the Business Premises Renovation Allowance for a further five years from 2012, providing relief on renovation of business premises in assisted areas.
• the Government will work with individual LEPs to consider: the scope for introducing enhanced capital allowances to support zones in assisted areas where there is a strong focus on high value manufacturing;
• Capital allowances: writing down allowances – As announced in the June Budget 2010, writing down allowances will be reduced to 18 per cent from April 2012. (Finance Bill 2011) (z)
• Capital allowances: annual investment allowance – As announced in the June Budget 2010, the Annual Investment Allowance will be reduced to £25,000 from April 2012. (Finance Bill 2011) (aa)
• Capital allowances: feed-in tariffs and Renewable Heat Incentives – The Government will consult in May 2011 on the appropriate capital allowances treatment of expenditure on plant and machinery that attracts tariffs under the feed-in tariffs or Renewable Heating Incentives schemes. (Finance Bill 2012)
• Update of enhanced capital allowance scheme for energy saving technologies – The list of designated energy saving technologies qualifying for enhanced capital allowances will be updated during summer 2011, subject to agreement with the European Commission.
• Capital allowances: short life assets – The disposal time limit on the capital allowances short life assets election will be extended from four to eight years. (Finance Bill 2011) (GR) (9)

By 2015-16 the changes were expected to reduce income to the treasury by around £200m/year.

• [1] March 2011 Budget documents

Debate in Parliament | Source |