In his Budget Announcement on 3 March, the Chancellor included announcements that will be welcomed by the construction and housebuilding sector and even used the construction sector to explain how the new ‘super deduction’ can be claimed for those investing in plant and machinery – converting a £10m capital spend into a £13m corporate tax deduction.
However, landlords are left out again – a sector that has been unable to enforce payment of rent since March 2020 and provides the infrastructure on which businesses depend.
The announcements that will have greatest impact for the Property & Construction sector are set out below.
Super Deduction – Another capital allowances class
From 1 April 2021 until 31 March 2023 companies who invest in qualifying new plant and machinery will get a 130% first year capital allowance – an upfront deduction when calculating profits chargeable to Corporation or Income Tax. A 50% first year allowance can be claimed for assets that qualify for the ‘special rate’, including long life assets.
Considerable investment is required to embrace all of the modern methods of construction, improve productivity, and reduce the carbon emissions of the sector. The Chancellor is clearly keen that this expenditure should be accelerated to help the UK economy recover and is providing a major tax incentive in a two-year window.
Corporation Tax carry back
Trading businesses (i.e. construction companies, developers, housebuilders, but not property investors) will be able to carry back losses of up to £2,000,000 and offset them against taxable profits reported in the last three years, generating a tax refund of £380,000
Any cash injections are welcome by any loss-making company. However it is disappointing that there is no ‘payment on account’ mechanism to allow an immediate repayment based on draft figures, and that property investors are not eligible for this relief, even though many are reporting losses as they have been unable to enforce payment of rental income since March 2020.
Corporation tax increases to 25% in April 23
Corporation Tax (currently 19%) will increase to 25% from 1 April 2023 on profits over £250,000. Profits below £50,000 will continue to be taxed at 19%, and there will be a tapering adjustment between the two thresholds.
All companies, onshore and offshore, need to include Corporation Tax at 25% on all investment and development appraisals from April 2023. Shareholders who extract profits as dividends and salary should revisit the balance and reassess the most tax efficient way of extracting income from their companies.
SDLT holiday extended
As expected, the Stamp Duty Land Tax (SDLT) holiday has been extended for three months until 30 June 2021 and a further (less generous) Stamp Duty holiday will apply for an additional three months: i.e., for residential property transactions completing between 1 July 2021 and 30 September 2021.
Buyers worried that they would not be able to complete on their purchases by 31 March will be relieved that they do not need to fund the SDLT payable on their purchase, while estate agents and conveyancing lawyers will continue to work hard through the summer as their clients push to get transactions completed.
Mortgage Guarantee scheme
From April 2021 – December 2022 the Government’s mortgage guarantee scheme will enable buyers with a 5% deposit to purchase homes up to £600,000.
Housebuilders can now be confident that houses built before December 2022 will have a market, despite the increased restrictions on eligibility for the Help to Buy Scheme. Buyers of second-hand homes will also be able to use this guarantee scheme so the whole housing market should benefit as well as the associated professionals such as estate agents and the other businesses that thrive when the housing market is active.
Support for jobs
Firms who hire new apprentices between 1 April 2021 and 30 September 2021 will receive a grant of £3,000 per apprentice, a doubling of the £1,500 previously payable for apprentices under 24, and an increase of £1,000 for those over 24.
The construction industry has an aging workforce and many EU workers have returned home. The industry needs to train up the workers of the future so these grants, and the increased flexibility promised in the apprenticeship scheme to train the workforce they need for the future, are much needed incentives to get on with this job.
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