Extension of enhanced capital allowances for Enterprise Zones
Published 16 March 2016
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Who is likely to be affected
Companies investing in plant or machinery in designated enhanced capital allowance (ECA) sites in Enterprise Zones.
General description of the measure
This measure extends the period in which businesses investing in new plant and machinery in ECA sites in Enterprise Zones can qualify for 100% capital allowances to eight years.
Policy objective
Enterprise Zones are part of the government’s growth agenda designed to encourage economic growth and investment. ECAs are intended to contribute to this objective by promoting capital investment by companies in a number of designated ECA sites within Enterprise Zones.
Background to the measure
ECAs in Enterprise Zones were introduced in 2012 for a five year period to 31 March 2017. This was extended for a further three years to 2020, giving eight years of ECA. The government announced at Budget 2016 that all Enterprise Zones will be entitled to eight years of ECA from the date of their announcement.
Detailed proposal
Operative date
The legislation will have effect from Royal Assent to Finance Bill 2016.
Current law
Capital allowances allow businesses to write down the costs of qualifying plant and machinery assets against their taxable income. The Enterprise Zone legislation is at sections 45K to 45N of Capital Allowances Act 2001. This provides 100% ECAs for expenditure incurred by companies on qualifying plant or machinery for use primarily in designated sites within Enterprise Zones, subject to certain conditions. The qualifying expenditure must be incurred in the period of eight years beginning with 1 April 2012, and the area in which the plant or machinery is to be used must be an Assisted Area at the time that the expenditure is incurred.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to change to eight years the period in which ECAs are available in Enterprise Zones.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| nil | nil | nil | nil | nil |
These figures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costing document published alongside Budget 2016.
Economic impact
The provision of the ECA for eight years for all Enterprise Zones is expected to support further investment in Enterprise Zones.
Impact on individuals, households and families
There is no impact on individuals or households. This measure has no impact on family formation, stability or breakdown. This change only affects companies that invest in plant or machinery in designated sites in Enterprise Zones.
Equalities impacts
The proposals have no impacts on protected equality groups.
Impact on business including civil society organisations
Companies qualifying for ECAs in Enterprise Zones will benefit from 100% first-year allowances, which will enable them to write off qualifying expenditure more quickly for tax purposes. The impacts of this measure on businesses’ administrative burdens are expected to be negligible as the change simply extends the relief and does not make any changes to the scope of the relief.
Small and micro business assessment: the majority of small and micro businesses will be able to write down all of their capital investment under the AIA. ECAs in Enterprise Zones are more likely to benefit businesses undertaking large capital investment.
Operational impact (£m) (HM Revenue and Customs (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 Tunde Ojetola on Telephone: 03000 585916 or email: tunde.ojetola@hmrc.gsi.gov.uk.