Increase In SBA Rate Offers More Opportunity For Investment

Businesses affected by the coronavirus pandemic could be entitled to claim a significantly improved rate of tax relief. In a Budget designed to alleviate the impact of the coronavirus lockdown, and offer vital support to business, the Chancellor announced an initial increase of 1% in capital allowances, under the Structures and Buildings Allowance.

This means, active as of April 2020, the rate for Structures and Buildings Allowance has increased to 3%. Other technical changes came into effect as early as March 11th, 2020, and the new package is expected to cost £1bn over the course of this parliament.  

Established in 2018, The Structures and Buildings Allowance (SBA) is a relatively new form of capital allowance which provides a 2% flat rate relief over 50 years for building work over 50 years. This can correspond to building work which is for own-occupation or investment. Prior to the formation of SBA, many businesses had expressed frustration that there were no grounds to claim tax relief due to how the assets were classified under UK tax law. SBA is viewed by many to represent a step towards addressing these concerns.

How are SBAs Different to the defunct Industrial Buildings Allowance?

SBAs bear more than a passing resemblance to the old Industrial Buildings Allowance, whose abolishment was announced over a decade ago, in 2007. The Industrial Buildings Allowance rules provided tax relief for the depreciation suffered on factories or other industrial buildings. The allowances were introduced in 1945, following World War II, and provided relief for construction over a 25-year period.

Under Industrial Buildings Allowance rules, there were three primary stipulations for making a claim:

• Expenditure had to be incurred on the construction of a building or structure
• The building had to be in use for a qualifying trade or other qualifying purpose
• The expenditure had to be ‘qualifying expenditure’

In March 2007 the Chancellor made the surprising announcement that the Industrial Buildings Allowance was to be phased out over a four-year period, a move which sent shockwaves across UK business, causing much consternation in many quarters. In an article from 19th December 2007 on Taxation.co.uk, Christopher Sanger concluded that, “The proposed abolition of IBAs shares a lot with the proposed changes to capital gains tax taper relief, in being retrospective in nature (even if not in technical and political terms) and seeming to deny a legitimate expectation.”

Upon initial observation, it would be easy to perceive the Structures and Buildings Allowance as a direct replacement for the Industrial Buildings Allowance. However, there is a key difference worth noting.

Unlike Industrial Buildings Allowance rules, SBAs have no balancing adjustments. Prior to their abolishment, Industrial Buildings Allowances worked on the basis that if a building was sold within its 25-year IBA timeframe, all capital allowances claimed by the seller were retrieved and passed to the buyer to be written-off over the remaining years of the 25-year tax life. SBA processes remove the ‘claw-back’ mechanism, meaning that any SBA claim can reduce the taxpayer’s base cost for capital gains purposes. In simpler terms, SBAs could be viewed as a means by which to ‘borrow’ tax relief from the government until the asset is sold at a profit. It should not, however, be perceived as an absolute tax saving.

What can businesses claim?

SBA claims relate to the initial cost of a building or structure, which meets its criteria for qualification. In the instance that a construction cost is not disclosed at the time of purchase from a vendor, a professional valuation will need to be made.

The SBA claims can only be made when a building or structure comes into use. Any costs which qualify for other capital relief, such as the Annual Investment Allowance (AIA), will not be considered.

Is my business eligible to claim SBA?

SBAs are eligible to most forms of business, including Sole Traders, Partnerships, SMEs, and other types of company.

For guidance on making an SBA claim, go to: www.gov.uk/guidance/claiming-capital-allowances-for-structures-and-buildings

Further opportunities for tax relief…

Is your company an innovator in its sector? If your business works on developing or improving existing products, services, or processes, you are likely eligible for Research and Development tax relief.

Areande, innovation tax relief specialists, could help you secure either a cash payment or a reduction in your tax bill.

To get started, fill out their quick and simple online form: www.areande.com/calculator