Construction in the UK given a boost in the March 2021 Budget

The UK construction industry contributed £117bn to the UK economy in 2019 (according to a report by BDO). A sector which could so easily have fallen into a sharp decline as a result of the pandemic. Last year Boris Johnson made much about the government’s plan to build build build! AND build back better! Keen to keep the economy moving and to increase people’s confidence to return to safe and healthy places of work and leisure.

The UK government pledged billions for public sector and infrastructure projects. In February, this year a further announcement outlined a £3.5bn Government fund to sort out the cladding on high rise residential blocks in England.  Last week’s budget did not disappoint either with a number of measures designed to give companies a strong incentive to make additional investments, and to bring planned investments forward to give that much-needed boost to the economy now.

We have a raft of well-established tax incentives and reliefs to get business owners and investors to build, refurbish and fit out commercial property.   It can, however, take a while for the cash benefits to be felt by those spending. The Treasury recognises that cashflow is vital right now, so the Chancellor Rishi Sunak introduced some generous temporary measures to promote innovation, encourage business growth and counter the potential downward business cycles.

The new Capital Allowances offer

A super-deduction of 130% first year tax relief will be available to companies who invest in qualifying main plant and machinery between 1 April 2021 and 31 March 2023.  For every £1 a company invests, their taxes are cut by up to 25p, making the UK’s capital allowances regime the most internationally competitive (of the OECD nations).

What are Capital Allowances?

Capital Allowances allow taxpayers to write off the cost of asset purchases against taxable income, and are claimed in lieu of depreciation. Such assets will include furniture, signage, blinds, racking, cold stores, sanitary fittings, catering equipment, alarm, security, telecom and AV systems, carpets and manufacturing plant etc.

Compare this to the current 18% annual writing down allowance for assets not covered by the annual Investment allowances (AIA). Now could be a good time to refresh workplaces to ensure they are covid19 compliant and rework health, leisure and hospitality spaces so customers will flock back to them.

50% first year allowance (FYA) for special rate assets purchased over the same time period which compares to the current 6% annual rate. There is no time like the present to upgrade ventilation and hand washing facilities to promote safer, healthier environments.

What qualifies for this special rate allowance?

  • Electrical systems (lighting, power etc)
  • Mechanical systems (heating, ventilation, air-con)
  • Hot & Cold-water systems
  • Solar panels/PV
  • Lifts
  • External solar shading

Annual Investment Allowance (AIA) providing 100% relief for investment in all plant and machinery up to £1m threshold, held until 31 December 2021.

Within one of the eight Freeport special economic zones, companies can access the new 100% FYA Enhanced Capital Allowances (ECA+). Companies, individuals and partnerships can benefit from increased Structures and Buildings Allowances (SBA+) up from 3% to 10% for investments until 30 September 2026.

The eight freeports announced in the budget are:

  • East Midlands Airport
  • Felixstowe and Harwich
  • Humber Region
  • Liverpool City Region
  • Plymouth
  • The Solent
  • The Thames
  • Teesside

Whilst all these measures provide good news for those planning to invest now and into the near future there comes a level of complexity with it. Investing in new assets will involve an element of building works too, each of which need to be allocated correctly. Tax planning and careful analysis of the capital expenditure will ensure all these tax reliefs are optimised and maximum savings achieved as early as possible, certainly before they revert back to the lower allowances and the corporation tax increases to 25% in 2023. There really is nothing to lose and everything to gain from these valuable tax incentives.

Louise Barth, founder & director