What are Fiscal Incentives?

Fiscal Incentives are tax concessions aimed at supporting business and economic growth and encouraging investment in targeted markets and technologies such as those that promote good environmental practice and research & development activities. The three primary sources of direct tax relief for property and development expenditure in the UK are Land Remediation Relief and Capital Allowances for site preparation and build costs and Research & Development tax relief on the costs typically incurred by engineering and construction companies in delivering complex projects.

Capital Allowances

Capital Allowances provide an allowable deduction in calculating the taxable profits of a trade. They are available for a variety of different trades and activities but the three primary ones applicable to property owners, occupiers and developers are Plant & Machinery Allowances (PMA), Business Premises Renovation Allowances and Research & Development Allowances.

+ PMA: General Plant & Machinery

PMA: General Plant & Machinery

Rate of Allowance: 18% writing down allowance per annum.

Scope: Capital expenditure on the provision of plant and machinery wholly or partly for the purposes of the qualifying activity that the person incurring the expenditure carries on and which is not an integral feature or long life asset. The definition of plant and machinery is not defined in statute so case law has been heavily relied upon and should be applied to determine eligibility in each case.

+ PMA: Integral Features

PMA: Integral Features

Rate of Allowance: 8% writing down allowance per annum.

Scope: Plant and machinery that is more integral to the building and is deemed to have a longer life than general plant. There is a specific list of integral features which includes Electrical systems (including lighting); cold water systems; space or water heating system, powered ventilation, air cooling or air purification or any floor or ceiling comprised in the system; lifts, escalators or moving walkways; and external solar shading.

+ PMA: Enhanced Capital Allowances: Energy & Water Saving Technologies

PMA: Enhanced Capital Allowances: Energy & Water Saving Technologies

Rate of Allowance: 100% first year allowance; 19% tax credit payable on allowable losses (capped at greater of £250k or value of PAYE and NI payments made in the year).

Scope: Capital expenditure incurred on installing new Energy and Water saving technologies that are either pre-registered on the Energy Technology Product List or Water Technology Product List or satisfy the energy-saving criteria for each of the technology classes as set out on the Energy Technology Criteria List. The relief is not available if a Feed-in-Tariff or Renewable Heat Incentive has been received.

+ PMA: First Year Allowance: Designated Assisted Areas

PMA: First Year Allowance: Designated Assisted Areas

Rate of Allowance: 100% first year allowance up until March 2020.

Scope: Plant and machinery installed by a company paying corporation tax as part of a project on a designated site within an Enterprise Zone up to a maximum of 125m Euros per project. The focus is on economic development in these areas but there are a number of restricted trades, most notably from 17th July 2014, projects in the transport sector or relating to energy generation, distribution or infrastructure; or relating to broadband installation.

+ PMA: Long Life Assets

PMA: Long Life Assets

Rate of Allowance: 8% writing down allowance per annum.

Scope: Capital expenditure incurred on assets which it is reasonable to expect will have a useful economic life in excess of 25 years and where total annual expenditure on long life assets is greater than £100,000. Long life assets do not apply to plant and machinery used in showrooms, hotels, offices or retail premises.

+ PMA: Annual Investment Allowance

PMA: Annual Investment Allowance

Rate of Allowance: 100% first year allowance up to the annual limit. The annual limits that apply are shown below.

Scope: The allowance can be claimed in lieu of new expenditure incurred each year on any other types of plant and machinery including integral features and long life assets up to the annual limit set for that year. Its primary purpose is to give an accelerated rate on all plant and machinery expenditure up to a maximum of the annual limit. Only one AIA is available for each company or group of companies.

Sole traders/partnersLimited companiesAIA
1 Jan 2016 – 31 Dec 2020
6 Apr 2014 - 31 Dec 2015
1 Jan 2016 – 31 Dec 2020
1 Apr 2014 - 31 Dec 2015
£200,000
£500,000
1 Jan 2013 - 5 Apr 20141 Jan 2013 - 31 Mar 2014 £250,000
6 Apr 2012 - 31 Dec 20121 Apr 2012 - 31 Dec 2012 £25,000
6 Apr 2010 - 5 Apr 20121 Apr 2010 - 31 Mar 2012 £100,000
6 Apr 2008 - 5 Apr 20101 Apr 2008 - 31 Mar 2010 £50,000
+ BPRA: Business Premises Renovation Allowance

BPRA: Business Premises Renovation Allowance

Rate of Allowance: 100% first year allowance (up to 31st March 2017 for Corporation Tax payers and 5th April 2017 for Income Tax payers).

Scope: Capital expenditure incurred on converting, renovating or repairing business premises that have been unused in the previous 12 months and are in a Disadvantaged Area (see Assisted Areas Order 2014) up to a maximum of £20m Euros per project. There are a number of restricted trades, such as businesses involved in the transport sector and energy generation.

+ R&D: Research & Development Allowance

R&D: Research & Development Allowance

Rate of Allowance: 100% first year allowance.

Scope: Capital expenditure incurred typically on providing facilities for a trader to undertake Research & Development related to their trade either directly or on their behalf. A just and reasonable apportionment can be made of capital expenditure only partly qualifying. The capital expenditure could apply to the apportioned building cost of an acquisition as well as the provision of new facilities or extensions.

Land Remediation Relief

Land Remediation Relief (including derelict land) was introduced in 2001 and modified in 2009 to incentivise the development of brownfield sites blighted by contamination and dereliction. It is only available to companies paying UK corporation tax.

+ LRR: Land Remediation Relief

LRR: Land Remediation Relief

Rate of Allowance: 150% tax relief claimed in year of expenditure (capital) or year the expenditure is deducted for tax purposes (revenue); 16% tax credit payable on allowable losses.

Scope: Capital or Revenue expenditure incurred on the remediation of contaminated land and buildings provided the company is not the polluter or connected to the polluter and is not in receipt of a subsidy (purchase price reductions to reflect the remediation costs are not deemed to be a subsidy). Qualifying costs include costs incurred on works contracted on behalf of the company, staff costs and materials.

+ DLR: Derelict Land Relief

DLR: Derelict Land Relief

Rate of Allowance: 150% tax relief claimed in year of expenditure (capital) or year the expenditure is deducted for tax purposes (revenue); 16% tax credit payable on allowable losses.

Scope: Capital or revenue expenditure incurred in bringing long term derelict land back into use. The land needs to have been unused since 1st April 1998 to qualify for the relief. The expenditure that qualifies on derelict sites is determined by statute and includes the costs incurred on removing building foundations and machine bases; removing reinforced concrete pile caps and basements; removing post tensioned concrete and removal of redundant services.

Research & Development

Incentives for Research & Development were introduced in 2000 for SMEs and extended to large companies in 2002. The current UK R&D tax reliefs, with their core in CTA2009 Part 13, are now amongst the most generous in the world and yet many companies still fail to claim, particularly in the engineering and construction sector.

+ Research & Development tax relief for SMEs

Research & Development tax relief for SMEs

Rate of Allowance: 230% tax relief claimed on eligible costs currently generating a cash benefit of £26k for every £100k of qualifying spend for profitable companies; a 14.5% tax credit is available to loss making companies who want to surrender any in year R&D losses rather than carry forward to set off against future profits. This generates a cash benefit of £33k for every £100k of qualifying spend. Where the R&D was subcontracted to the SME by a large company or the R&D project being carried out by the SME has been funded by a grant received as a notified State Aid, then relief can only be claimed at large company rates.

Scope: R&D relief is available on the cost of activities that directly contribute to an advance in a field of science or technology through the resolution of scientific or technological uncertainty (The BIS Guidelines). Some generally accepted qualifying activities could include design, construction and testing of prototypes and design work with inherent scientific and technological uncertainty.

Eligible costs can include staff costs for directors and employees – whether in-house or recharged by a group company; sub-contractors whether connected or unconnected; certain freelance subcontractors and costs of computer software and materials that are used up during the R&D or prototyping process.

+ Research & Development Expenditure Credit (RDEC) for large companies

Research & Development Expenditure Credit (RDEC) for large companies

Rate of Allowance: 11% tax relief claimed on eligible costs as an above the line taxable benefit generating a post-tax cash benefit of £8.8k for every £100k of qualifying spend for profitable companies; loss making companies can claim the 11% tax credit even though no corporation tax is paid.

Scope: R&D relief is available on the cost of activities that directly contribute to an advance in a field of science or technology through the resolution of scientific or technological uncertainty (The BIS Guidelines). Some generally accepted qualifying activities could include design, construction and testing of prototypes and design work with inherent scientific and technological uncertainty.

Eligible costs can include staff costs for directors and employees – whether in-house or recharged by a group company; certain freelance subcontractors; costs of computer software and materials that are used up during the R&D or prototyping process or contributions to independent research activities.