Enhanced Capital Allowances in Enterprise Zones
Published 11 March 2020
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Who is likely to be affected
Companies investing in new plant or machinery for use in designated assisted areas within Enterprise Zones.
General description of the measure
This measure ensures that the 100% first year capital allowance will remain available for expenditure incurred in relation to all areas, whenever designated, until at least 31 March 2021.
Policy objective
Enterprise Zones are designed to provide government support to encourage investment and economic growth.
Enhanced first year capital allowances are intended to contribute to this by promoting capital investment by companies in a number of specific designated sites within Enterprise Zones.
Background to the measure
Enhanced first year allowances for investment in new plant or machinery within designated assisted areas within Enterprise Zones were introduced in 2012 and were initially available for investment over a 5-year period but this was later extended to 8 years.The period commences from when the area is treated as designated.
By 31 March 2020, 8 years will have elapsed since the introduction of these enhanced first year allowances. The government has announced at Budget March 2020 that these capital allowances will remain available for expenditure incurred in relation to all areas, whenever designated, until at least 31 March 2021.
Detailed proposal
Operative date
The legislation will have effect from 1 April 2020.
Current law
Capital allowances allow businesses to write down the costs of qualifying capital expenditure on plant or machinery against their taxable income. The capital allowances legislation in respect of Enterprise Zones is at Sections 45K to 45N Capital Allowances Act 2001.
This makes available an enhanced 100% first year allowance for qualifying expenditure incurred by companies on plant or machinery for use primarily in designated assisted areas within Enterprise Zones, subject to certain conditions.
The Enterprise Zone must also be located within an Assisted Area which is specified within Section 1 Industrial Development Act 1982 or Northern Ireland. The qualifying expenditure must be incurred within a period of 8 years beginning with the date the specific area is treated as having been designated.
Proposed revisions
Secondary legislation will be introduced to ensure that the enhanced first year capital allowance remains available for expenditure incurred in relation to all designated assisted areas, whenever designated, until at least 31 March 2021.
Summary of impacts
Exchequer impact (£ million)
| 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 |
|---|---|---|---|---|---|
| negligible | negligible | negligible | - | - | - |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts. The extension of these enhanced capital allowances for a further year is expected to support further business investments in Enterprise Zones.
Impact on individuals, households and families
There is no impact on individuals or households because this change only affects companies that invest in plant or machinery in designated areas within Enterprise Zones. There is no impact on family formation, stability or breakdown.
Equalities impacts
This is not expected to have any impact on groups sharing protected characteristics.
Impact on business including civil society organisations
This will benefit companies which qualify for the 100% first year allowance in designated assisted areas as it will enable them to write off qualifying expenditure more quickly for tax purposes. The impact on businesses’ administrative burdens is expected to be negligible as the change is extending the availability of relief and not the scope of the relief. One off costs include familiarisation with the change. There are not expected to be any on-going costs. There is expected to be no impact on civil society organisations.
Small and micro business assessment: the majority of small and micro businesses will be able to write down all of their capital investment in plant or machinery through the availability of another capital allowance, the Annual Investment Allowance. The first year allowance for use of plant or machinery within Enterprise Zones is more likely to benefit businesses undertaking large capital investments.
Customer experience is expected to remain the same as businesses’ interaction with HMRC is not expected to change.
Operational impact (£million) (HMRC or other)
This measure will have negligible operational impact for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact John Rodgers on telephone: 03000 514188 or email: john.p.rodgers@hmrc.gov.uk