Corporate Tax Newsletter - January 2024

Capital Allowances Refresher

In recent years, the way in which companies can claim relief on the qualifying Plant and Machinery (P&M) that has been purchased has been under regular change. Therefore, we outline the following example on capital allowances as a refresher to help understand which reliefs are available to companies on P&M purchased.

Reliefs available from 01 April 2023:

100% Full expensing first year allowances
50% Special rate first year allowances
100% Annual Investment Allowance
18% Main pool writing down allowances
6% Special rate pool writing down allowances

There are other first year allowances specifically for electric vehicles, charging points and spend in Enterprise Zones and freeport sites, as well as different allowances for structures and buildings.

Purchase of Laptop

A common example of qualifying P&M would be a company purchasing a laptop, dependent on the condition of the laptop and profile of the company, the type of capital allowances relief available to be claimed can vary:

100% Full Expensing

Available to be relieved at 100% full expensing if laptops are new and unused
Purchased April 2023 – March 2026
Relief is unlimited and companies receive instant tax relief on qualifying purchases

100% Annual Investment Allowance (AIA)

Second-hand purchases such as refurbished laptops
Does not qualify for new and unused fully expensing requirements
100% instant tax relief on qualifying purchases
Capped at £1 million per year

18% Main Pool (WDAs)

Second-hand purchases such as refurbished laptops
AIA £1 million allowance has already been utilised
Qualifies for relief at 18% WDAs in the year of purchase
Remaining cost of laptop carried forward and relieved year on year at 18% tax relief

Purchase of Car

Another notable example would be the purchase of a company car, the relief available depends on various factors:

If purchased new and unused or second-hand
Date of purchase
The CO2 emissions of the car, or if the car is electric

When considering the above factors, a company can receive tax relief at:

100% first year allowance
18% main pool WDAs
6% special pool WDAs

Careful consideration should be given when deciding which car to purchase for tax efficiency purposes and if this fulfils the needs of the company.

Please note that for capital allowance purposes, a commercial vehicle (e.g., van) is not classed as a car and will follow the same treatment as the earlier example for the laptop.

Should you require any further assistance regarding the purchase of the capital assets and the relief that is available, please do not hesitate to get in touch as one of our tax specialists will be on hand to assist with any queries.

Annual Tax on Enveloped Dwellings (ATED) Returns

ATED is an annual tax payable mainly by companies that own UK residential property valued greater than £500,000.

Following the end of the financial year (from 1 April 2024), each company (as well as partnerships where a partner is a company or other collective investment schemes) which owns residential property valued greater than £500,000 has until 30 April 2024 to file their ATED return to HMRC.

The ATED return can be filed online from 1 April 2024. The deadline for filing returns is 30 April 2024 otherwise late filing penalties and late payment interest may be levied.

The valuation date used for ATED returns is updated every five years, and 1 April 2022 is the most recent valuation date for the purposes of ATED. This is the property value used for the 2024/25 ATED return.

Valuations must be an open-market willing buyer, willing seller basis and be a specific amount (i.e. not a range). A professional valuation is not required, although can be obtained should the company wish to have a third party evidence in the event of a challenge from HMRC.

The off-payroll working rules

The off-payroll working rules (more commonly known as “IR35”) were introduced to ensure that a worker pays broadly the same Income Tax and National Insurance as an employee would.

1. When do the rules apply?

You may be affected by these rules if the worker who provides services to a client through an intermediary (usually a limited company but can be through a partnership or another individual) and would have been an employee in the absence of the intermediary.

2. Who do the rules apply to?

These rules may affect you if you are:

A worker who provides their services through an intermediary to a client
A client who receives services from a worker through an intermediary
An agency or other supplier providing workers’ services through their intermediary.

3. Who is responsible for determining the employment status?

It depends on the size and type of end client.

In most cases, this responsibility will sit with the end client. However, if a worker provides services to a “small client” outside of the public sector, the worker’s intermediary is responsible for determining if the IR35 rules apply.

4. What happens if the rules apply?

The party which is responsible for applying the rules must determine whether the worker is employed for tax purposes. HMRC provide a useful tool called Check Employment Status for Tax (CEST) which can be used to help make the status determination. This tool will help decide the taxes the worker and deemed employer need to pay from determining whether the worker is employed or self-employed.

If the rules do apply, the client must issue a status determination statement (SDS) to the worker which should outline the reason for the determination of a contract. The deemed employer must deduct Income Tax and employee National Insurance contributions from fees paid to the worker’s intermediary. Employer’s National Insurance contributions must be paid to HMRC by the deemed employer.

Electricity generator levy

For accounting periods ending between 1 January 2023 and 31 December 2028, companies that have electrical generation receipts may be subject to a levy of 45% on those receipts. If the company generates 50,000 megawatt hours in a year (pro-rated if it straddles the start or end dates), it will have to determine whether it has made exceptional generation receipts which has a number of steps in order to calculate this. The levy will only apply to exceptional receipts exceeding £10 million in an accounting period.

A relevant generating station for the purposes of this levy is one that is not a generating station that mainly generates electricity:

As a result of the burning of oil, coal or natural gas, or
As a result of the use of plant driven by water, where the power is mainly as a result of the hydrostatic head of the water having been increased by pumping.

There are other conditions to this, such as the income not being subject to specific contracts for difference, and there are specific definitions that form part of the calculations which will need to be looked at in detail on a case by case basis.