7 Mins
Super-deduction/Special Rate allowances
Quarterly instalment payments
Employment-related securities
Benefit-in-kind – vehicles
Annual Tax on Enveloped Dwellings (ATED) Returns
Super-deduction/Special Rate allowances
The super-deduction as announced by the chancellor in the March 2021 budget started on 1 April 2021 (or where contracts were entered into for plant and machinery from 3 March 2021) and is due to end on 31 March 2023. This enhanced capital allowance will allow qualifying plant and machinery to obtain capital allowances of 130% giving tax relief of 24.7%. For example, spending £100,000 will generate capital allowances of £130,000 which results in an additional corporate tax saving of £5,700. This enhanced relief is only available to companies under the corporate tax regime and is therefore not available to partnerships or sole trades.
Qualifying assets and exclusions
Plant and machinery that would normally qualify as main pool tangible assets should qualify for the super-deduction however there are a few exceptions which include:
- Qualifying assets purchased must be bought new and unused
- Cars do not qualify; however, vans do.
- Assets purchased to be then leased to a secondary company will not qualify.
- Any assets used in a ring-fenced trade such as oil & gas.
Disposal of assets after claiming super-deduction
For disposals of assets claimed under the super-deduction enhancement, there are slightly different rules upon disposal. Any disposal proceeds will give rise to a balancing charge in the year of disposal, increasing taxable profit or reducing any loss in the year of disposal. For example, using the £100,000 assets purchased above, if this was subsequently disposed of and proceeds raised of £25,000, this would give rise to a balancing charge of £25,000.
In addition, if the disposal took place when the accounting period ends before 1 April 2023 then this balancing charge will be uplifted by a factor of 130% which would make the £25,000 proceeds result in a balancing charge of £32,500. For periods that span 1 April 2023, this uplift will be pro-rated.
Special rate allowance
Assets that would normally be classed as special rate items, such as integral features, are not eligible for the super-deduction however, they would be eligible for the special rate allowance. This is an additional 50% first-year allowance that has been introduced alongside the super-deduction. Qualifying assets have similar rules and restrictions as the super-deduction such as the assets purchased must be new and unused.
When the 50% FYA allowance is claimed the remainder of the asset value is included in the special rate pool and the usual 6% WDA will apply. Upon disposal of the asset, 50% of any proceeds will create a balancing charge, with the remainder of the proceeds offset against the special rate pool.
The annual investment allowance is still available for special pool assets and will give 100% capital allowances in the year of purchase so could be more beneficial than the 50% special rate allowance. Currently, this is set at £1m but is due to reduce to £200,000 on 31 March 2023.
Take-away
While the super-deduction and special rate allowance are significant capital allowance reliefs it may still be worth considering if these are appropriate. Though these reliefs could lower corporation tax payable during this period, balancing charges on any future disposals could have an impact on the corporate tax in future years. With the corporate tax rate scheduled to increase to 25% from April 2023 for companies with profits greater than £250,000 this may impact future tax liabilities and cash flow. In addition, appropriate record-keeping will be required to ensure that any potential disposals have appropriate balancing charges applied accordingly.
Quarterly instalment payments
Current rules:
Any company that is classed as large or very large is required to pay their corporation tax by quarterly instalment payments (“QIPs”). Companies are deemed to be large if their augmented profits exceed £1.5m and they are very large if the augmented profits would exceed £20m. To calculate the augmented profits of a company, we take the total taxable profits, add on any exempt dividends but exclude any dividends received from group companies.
Currently, these thresholds are divided by the number of 51% related group companies.
The Changes:
From 1 April 2023, as included in the Finance Act 2021, a group for QIPs purposes will no longer be the company and its 51% related group companies, but instead, it will be the company and its 51% associated companies. Both definitions include overseas companies and ignore dormant companies.
Associated companies:
For a company to be defined as associated either of the following must apply:
- One of the companies must have control of the other, or
- Both are under the control of the same person.
Control means having more than 50% of the share capital, voting power and/or distribution rights.
What could this mean for your company?
With these changes taking effect in April 2023, there may be companies that were not previously in a group that may find themselves related for QIPs purposes. These rules should be considered as early as possible as it may have cash flow and interest implications. It should also be noted that interest rates have recently increased, therefore the interest charges may be more significant than in prior periods.
Employment-related securities
As the 2021/22 tax year has now drawn to a close, it is important for employers to consider their Employment Related Securities (ERS) reporting requirements.
A reportable event is any event whereby an individual acquires shares/securities or exercises options in the company which employs them (or in another company, by reason of their employment). The rules also apply where a connected party, such as a spouse, acquires the securities; and you even need to report where the individual has paid full market value for the shares.
We have seen an increase in the number of employers which have ERS issues, therefore it is important to consider reporting responsibilities. ERS returns are filed annually online through the employer’s HMRC account and, where there is a scheme registered from previous years, a nil return will be still required even if there have been no events during 2021/22.
The submission deadline for ERS returns for the tax year ended 5 April 2022 is 6 July 2022. Failure to submit on time can lead to significant penalties, even if there is no tax liability due to HMRC.
If an employer needs to file a return for the first time, it can take some time for the administrative procedures of registering the scheme etc to be concluded. Please get in touch as soon as possible to avoid any late rush or potential late filing penalties.
Benefit-in-kind – vehicles
Following the end of the income tax year (5 April), businesses must report certain non-cash benefits (Benefit-In-Kind) they provided to staff during the year ended 5 April 2022 to HMRC by 6 July 2022.
Although there are many different types of benefits that employers can provide which require reporting to HMRC (e.g. medical insurance, etc), an area that HMRC pay particular attention to is where employees have access to company vehicles. HMRC treat vehicles available to employees as a Benefit-in-Kind unless the vehicle falls within 1 of the following exemptions:
- The vehicle is owned by the employee i.e. the employee is using their own vehicle.
- The vehicle is available for business journeys only – It is important to note that employees must not use the vehicle for private journeys (e.g. weekend shopping trip) and that the employer must check that no private journeys are undertaken.
- Cars adapted for an employee with a disability – private use journeys are exempt provided the private use is either home and work travel and travel to work-related training.
- ‘Pool’ cars – There are various criteria to meet to be deemed a pool car but the main ones are that there is no private use, and that the vehicle is available to, and actually used by, more than one employee. The vehicle should also normally be kept on the business premises.
- Cars provided to close relatives – only applies to sole traders and where the close relative does not work for the business. This is because no deduction for the sole trade would be allowed.
If the vehicle the employee uses does not fall within any of the above categories, HMRC expect employers to report the Benefit-in-Kind charge on the employees P11D.
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.
As the new financial year commences, 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 2022 to file their ATED return to HMRC.
The ATED return can be filed online and this must be done this month to avoid any late filing penalties and any late payment interest.
The valuation date used for ATED returns is updated every five years, and 1 April 2022 is the new valuation date for the purposes of ATED. It is important that as well as filing the 2022/23 ATED return this month (which still uses the 1 April 2017 valuation) that any residential properties held by the company are revalued for use in the 2023/24 return due to be submitted by 30 April 2023.
Valuations must be on 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 third party evidence in the event of a challenge from HMRC.
Get in touch
Susan Pattison
