Blogs/Vlogs

Making allowances: 2019's promising changes for automotive sector

8 February 2019

The start of the year ushered in some fairly significant changes to the way tangible fixed assets you acquire are taxed. Anticipating some fairly strong headwinds for the UK economy, in his budget on 29 October the Chancellor was looking to provide a fiscal stimulus in the form of an increase to the Annual Investment Allowance (AIA) limit from £200,000 to £1,000,000.

The AIA allows companies to claim 100% of the cost of qualifying expenditure as a deduction from taxable profits. Taking £1,000,000 and a corporation tax rate of 19% we can see that there could be a reasonable amount of corporation tax involved, and this could well have an effect when making investment appraisals.

What’s qualifying expenditure? Well, there’s a range of items that could qualify, from the obvious such as new kit for the servicing department, IT equipment and vans through to the more obscure such as lifts, escalators or even “external solar shading”.

The £1,000,000 limit is effective (for the time being) for a period of 24 months from 1 January 2019. What this means is that if you have a financial year that spans 1 January 2019 then you get a time apportionment of the old and the new AIA limit – so a 31 March 2019 year-end will get 9/12ths of £200,000 plus 3/12ths of £1,000,000 (to save you getting the calculator out, that comes to £400,000).

Another development of note for motor dealerships in the Chancellor’s budget was that another form of capital allowance, referred to as the Structure and Buildings Allowance (SBA). The SBA is a straight line 2% allowance on the construction costs of new non-domestic buildings or structures. Those of you have been around for a while may think this sounds like a less generous version of the old Industrial Buildings Allowance, and you’d be about right. The devil, as ever, is in the detail however, and I would encourage you to speak with your usual UHY contact if you wish to determine the precise tax impact of your investment decisions.

For more information about this blog, please contact me or a specialist in our automotive team.

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