The first-year allowance for qualifying new and unused plant and machinery acquired by unincorporated businesses and companies intending to lease the plant and machinery increases from 40% to 50% for expenditure incurred on or after 1 January 2027.
Full expensing, providing 100% tax relief on expenditure incurred on qualifying plant and machinery, and other first year allowances remain in place.
The writing-down allowance rate for the main rate capital allowances pool will reduce from 14% to 12% from April 2027, slowing relief for expenditure remaining in the pool.
The requirement for companies claiming R&D tax relief to submit a pre-notification will be removed for claims made on or after1 April 2027, and the information to be submitted in the Additional Information Form in support of R&D claims will also be simplified.
The impact to the Exchequer of these measures over the next few years has been estimated at £305m, which presumably indicates the effect of the administrative oversight by companies.
The removal of the pre-notification requirements and simplification of the Additional Information Form will be welcomed by companies, reducing an administrative barrier to claiming relief for claims made on or after 1 April 2027.
Companies that have not made R&D claims due to the pre-notification requirements should review the legislation when available to determine whether there is now an opportunity to do so.
Reforms in recent years, including the introduction of the pre-notification and Additional Information Form requirements in 2023, sought to address perceived error and fraud in the R&D schemes. With the levels of non-compliance seemingly reducing, it appears that the measures had a positive effect.
HMRC’s current approach appears to be shifting towards a more targeted approach to compliance checks.
In addition to the removal of the pre-notification requirements and simplification of the Additional Information Form announced in the Budget, the introduction of a targeted advance assurance service pilot for SMEs, updated guidance and the provision of a project eligibility assessment tool are all recent measures that have been introduced to provide support to companies.
The increase in first-year allowance to 50% is an extension of the 40% allowance that was introduced in last year’s Budget and will be welcomed by leasing companies and unincorporated businesses.
Companies affected by the increase in the first year allowance should consider the impact on the timing of any imminent capital projects.
The reduction in the main rate writing-down allowance to 12% is an extension of the reduction from 18% to 14% announced in last year’s Budget and will principally affect businesses with existing large pool balances and businesses unable to avail of 100% first year allowances.
The changes to capital allowances are estimated to benefit the Exchequer by approximately £5bn over the next six years, demonstrating the anticipated impact of the measures on businesses.
The recent Supreme Court decision in the Ørsted case included a narrow interpretation of the meaning of expenditure incurred “on the provision of plant and machinery”. Early-stage surveys and some professional fees for an offshore wind farm were deemed too remote to qualify for capital allowances.
HMRC launched a consultation following the Ørsted case in respect of the impact on pre-development costs in capital projects, and today published a summary of the responses to the consultation, and the Government intends to work with stakeholders to explore what improvements can be made to HMRC guidance to provide greater clarity on the rules.
Capital project costs should be analysed and reviewed against the Supreme Court’s findings in the Ørsted case and HMRC’s updated guidance following the decision.
The measures unveiled in the UK Autumn Budget will have far-reaching implications for businesses across Northern Ireland. If you have any enquiries, comments, or wish to explore further, we are here to assist.
Contact Mathew Scott or Paul Eastham of our Tax team today.
