Tax Relief on buildings and machinery

The Budget on 29^th October did not have much of interest for farmers. However, there were a number of changes relating to the amount of tax relief available on capital expenditure.

Tax relief on machinery

The standard rate of tax relief on machinery and equipment is 18% but all businesses can claim 100% on a specified amount of expenditure each year – known as the Annual Investment Allowance or AIA. This has been £200,000 per business since 1^st January 2016, which is sufficient for most farming businesses. The Chancellor announced that the AIA will increase to £1 million for the two year period between 1^st January 2019 and 31^st December 2020. This is clearly an attempt to stimulate the economy in the period after Brexit.

Where a business has an accounting year end which straddles the 31^st December, it is necessary to apportion these limits. For example a business with a 31^st March year end will have an AIA of £400,000 in the year to March 2019, £1 million to March 2020, and £800,000 to March 2021. For businesses spending large amounts on machinery, the timing of expenditure will be crucial to maximise the tax relief.

Tax relief on buildings

Up to 2008 there was an allowance of 4% per year on certain agricultural and industrial buildings. These were phased out between 2008 and 2011 and in recent years there has been no tax relief on a basic building. In many modern farm buildings there are items which qualify for AIA in their own right, e.g. electrical wiring, water fittings, ventilation, etc.

From 29^th October 2018 a new Structures and Buildings Allowance is introduced on the cost of a basic building, but at the less than generous rate of 2% per year. The allowance can only be claimed once the building has been brought into use, and cannot be claimed if a contract was in place on 29^th October 2018.

Tax relief on cars

The rate of tax relief depends on the CO2 emissions of a vehicle. Currently a car with CO2 emissions of more than 110g/km receives a relief at 8% per year, but this now reduces to 6% from April 2019. This means that a greater proportion of the tax relief is only received when a vehicle is sold.