UK Spring Statement: business tax plans focus on incentivising investment

Incentivising business investment is a priority for the government, as this is a key driver of growth, according to the government’s new tax plan published alongside the chancellor’s spring fiscal statement. UK business investment currently lags behind the average among OECD member countries, accounting for 10% of UK GDP in 2019 compared to 14% on average across the OECD.

The government will now consider options for incentivising business investment and replacing the current ‘super-deduction’ for plant and machinery that is due to end in April 2023.

Corporate tax expert Eloise Walker of Pinsent Masons said: “It is interesting that after years of lobbying by various industry bodies, it has finally been admitted that the overall tax treatment of capital investment in the UK is ‘less generous’ than the OECD average”.

“The acknowledgment that something must be done is welcomed – it’s just not quite clear yet what that something is. We will have to wait until the Autumn Budget, when hopefully we will have a better idea of how the government will go about reforming business tax on capital investment,” she said.

A 'super-deduction' of up to 130% is available to companies investing in qualifying new plant and machinery between 1 April 2021 and 31 March 2023. Under the enhanced deduction, investments in assets qualifying for capital allowances at the 18% main rate benefit from a 130% first-year allowance, whilst investments in 'special rate' assets normally qualifying for allowances at only 6% will benefit from a 50% first-year allowance. Special rate assets include long life assets and integral features in buildings such as lifts and air conditioning.

Overall, said Walker, there was “not much substance” to the chancellor’s announcements.

“There were good things in the statement - lower income households will be pleased to see fuel duty cut, income tax cut albeit from 2024 and an increase in the NICs threshold to equalise with income tax. It’s just that most of what’s there as immediate priorities is feel-good political content rather than stuff that will actually help the UK economy grow,” she said.

Beyond incentivising capital investment, the statement included two energy saving tax announcements. The targeted business rates exemptions to encourage the decarbonisation of non-domestic building will be brought forward to April 2022, rather than April 2023 as previously announced. Zero-rated VAT relief will also be introduced for the installation of certain energy saving materials from April 2022, for a time-limited five-year period.

Property tax expert Richard Croker of Pinsent Masons said: “It is great to see the chancellor proposing a ‘Brexit dividend’ in the form of zero rating for ESM in buildings – but it should be noted that it is time limited. Frustratingly, there is so much more that he can do now our VAT system is decoupled from the EU”.

“The acceleration of the business rates exemption for renewable energy generation and low carbon heat networks in non-domestic buildings – at the cost of central not local government - is also welcome, if part of a piecemeal approach to green investment,” he said.