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Investment allowances

Allowances to encourage investment continue to be available. We highlight what is offered and can be shared with your clients.

Allowances to encourage investment continue to be available. We highlight what is offered and can be shared with your clients.

Capital allowances

No changes were announced to the current capital allowances regime.

Research and development

The Autumn Statement saw no new announcements on research and development, which has already seen a number of changes in recent years. To recap:

  • small and medium-sized enterprises can claim tax relief of up to 225% of qualifying expenditure on research and development
  • large companies can claim an ‘above the line’ tax credit of 10% of qualifying R&D expenditure
  • the Patent Box which introduced a reduced rate of corporation tax of 10% for income derived from patents.

The above reliefs are only available to corporate entities.

Practitioners may benefit from this useful free educational material.

It has been designed to help practitioners and their clients to identify assets which may be protected by intellectual property (IP) rights, including patents. The free educational material contains four short modules of basic IP advice on those assets and also provides links to more detailed information and professional services.

Tax incentive schemes

There was little change to main tax incentive schemes. Several changes were, however, announced to the venture capital trust (VCT) scheme.

The main change is in the form of a new anti-avoidance measure to be introduced in connection with VCT schemes. The new measure will be introduced with effect from 6 April 2014 and will prevent investors from refreshing income tax relief on investments by disposing of VCT shares and reinvesting the proceeds in new shares.

The following investments will no longer qualify for income tax relief under the VCT scheme:

  • investments that are conditional on a share buy-back or where a share buy-back is conditional on the investment
  • investments made within six months of the sale of shares in the same VCT.

The government will also consult further on potential changes to VCT rules to address the use of converted share premium accounts to return capital to investors where that return does not reflect profits on the VCT’s investments. To continue to facilitate use of VCTs by different types of retail investors, the government will change the VCT rules so that investors can subscribe for VCT shares via nominees.

Employment-related share schemes

There are two small changes to employment-related share schemes which will come into effect from 6 April 2014:

  • Share incentive plans (SIP) – the maximum value of shares that can be awarded annually to an employee under a SIP is to increase from £3,000 to £3,600. Also, the amount of partnership shares that an employee may purchase annually under the scheme is increased from £1,500 to £1,800 (restricted to a maximum of 10% of the employee’s salary for the year).
  • Save as you earn (SAYE) share option schemes – the maximum amount that an employee may contribute to a SAYE share option scheme is to be increased from £250 to £500 per month. 

Industry specific tax incentives

  • tax relief for theatres – the government will consult in early 2014 on the introduction from April 2015 of a limited tax relief for commercial theatre productions and a targeted tax relief for theatres investing in new works or touring productions to regional theatres
  • corporation tax: film tax relief – the government will make relief available at 25% on the first £20m of qualifying production expenditure, and 20% thereafter, for small and large budget films from April 2014, subject to state aid clearance. The government will also reduce the minimum UK expenditure requirement from 25% to 10%, and will modernise the cultural test. The government will seek state aid clearance to increase the rate of relief to 25% for all qualifying expenditure when drawing up the Finance Bill 2014
  • shale gas/fracking – there will be a new tax allowance to encourage investment in the controversial shale gas industry, which will halve tax rates on profits in early years
  • oil and gas exploration and appraisal – the substantial shareholding was introduced in 2002 and exempts chargeable gains on the disposal of shares in one company by another company where certain qualifying conditions are met. The main conditions are that there is a minimum shareholding of 10% and the shares held for a minimum period of 12 months. The substantial shareholding exemption is to be extended to cover companies involved in oil and gas exploration. This measure will take effect from the date that the Finance Bill 2014 receives Royal Assent.

Legislation will also be introduced to implement reinvestment relief for assets disposed of by pre-trading companies involved in oil and gas exploration, to prevent a chargeable gain from being chargeable to corporation tax, where the proceeds are reinvested for the same purpose.

Article contributed by ACCA