Corporation Tax and Capital Allowances
The new Government has committed to stabilising the corporate tax system in order to provide longer term certainty for corporate businesses looking to invest and grow. This has come in the form of a ‘Roadmap’ which sets out as its main initiative to……… largely leave things as they are in the context of construction and property. The main announcements included:
Maintaining Corporation Tax rates at their current levels, with a specific statement that the headline rate of 25% would stay for the length of this Parliament.
Maintaining the valuable capital allowances tax reliefs for those businesses investing in capital assets including property, the main ones being:
- Full Expensing which provides 100% or 50% first year allowances on machinery and plant
- Continuing to allow the first £1m spent on machinery and plant per annum to qualify for 100% first year relief
- Continuing to allow machinery and plant expenditure not benefiting from the first year reliefs to receive 18% or 6% annual writing down allowances
- Persevering with the Structures and Buildings Allowance regime to provide relief at 3% per annum on new non-residential construction spend
(It is worth noting that the last three are equally applicable to unincorporated businesses)
Although there is a clear aim not to tinker with things at the moment, there have been commitments to explore a number of related issues including:
- Simplifying the capital allowances regime (albeit at an even slower pace than has already been implemented)
- Seeking clarity of the tax treatment of pre-development costs in the light of the decision in the recent Gunfleet Sands case, which sought to restrict eligibility and so goes against the Government's intention to encourage investment
- Looking further into extending Full Expensing to leased assets
As part of this Roadmap, the intention is to monitor what is happening overseas to make sure the UK remains internationally competitive. Whether this will override the idea of stability is a question we can’t yet answer. Other corporation tax measures were included but none that would likely have a direct impact on construction and property.
Other Capital Allowances
As well as the overriding intentions set out in the Roadmap, a couple of other capital allowances points are worth a mention:
- 100% first-year allowances for electric vehicle charging points (and electric cars) will be extended for another year, taking it to 31st March and 5th April 2026 for corporate and unincorporated business respectively
- The beneficial treatment for Furnished Holiday Lettings will still be abolished in line with the intentions of the previous Government, meaning that capital allowances will no longer be available on these from April 2025. It will however be possible for the owners to continue benefiting from their existing capital allowances pools even after the abolition date, so at least these will not be lost
Increased Public Investment
As expected, the Chancellor announced increased levels of public investment which should either directly or indirectly provide a boost to the construction sector. Headline investments will include:
- Funding for tunnelling for HS2 to Euston Station
- An additional £500million for local roads maintenance, increasing funding from the current £1.1billion to £1.6billion
- An additional £500million for the Affordable Homes Programme to kickstart affordable and social housebuilding
- £1billion of additional expenditure to address critical maintenance, repairs and upgrades across the NHS estate
- An additional £550million allocated to the school rebuilding programme, increasing funding to £1.4billion next year
- Long term funding of almost £3.5billion over the next five years for the aerospace, automotive and life sciences sectors
In support of the above the Government is to establish the National Infrastructure and Service Transformation Authority (NISTA) to drive more effective delivery of national infrastructure projects.
VAT on Private School Fees
As widely publicised, the Chancellor confirmed that from 1st January 2025, all education services and vocational training provided by a private school in the UK, for a charge, will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools.
While this may be disappointing news for those in a position to consider private education, it will positively affect institutions planning capital projects. Previously, private schools could not recover VAT on these projects and depended solely on a zero-rate option, which was available only in limited circumstances. However, with this change, most (if not all) of the VAT incurred will now be recoverable.
Private schools which undertook capital projects within the last 10 years may also be able recover some of the VAT incurred due to this change.
Landfill Tax
As announced in the previous Government’s Spring Budget, the rates of Landfill Tax will rise significantly from 1st April 2025 as follows:
Aggregates Levy
Following an increase in 2024, the rate of aggregates levy is again due to rise from 1st April 2025 to £2.08 / tonne.
