In the Spring Budget, the Chancellor announced that the Climate Change Agreements scheme would be extended for a further two years to 2027.
Target Period 5 ended on 31st December 2022. The newly announced Target Period 6 will be in place from 1st January 2024 to 31st December 2024, with the base year set as 2018. This means there will be, in effect, a gap year where performance will not be measured but the Government says ‘our intention is that the targets for TP6 will reflect an ongoing trajectory of improvement following the end of TP5’.
Performance against the targets will allow reduced rates of Climate Change Levy (CCL) to be available for eligible businesses for a further two years until 31 March 2027.
It’s important to note that no surplus CO2 is to be carried forward from TP5 to TP6 and the buyout price will increase from £18/tCO2e to £25/tCO2e.
As a result of the extension, a new application window of 1st May 2023 to 30th September 2023 is likely to re-open for those who are eligible (there is no change to the eligibility criteria). Successful applicants would be able to claim the reduced rates of the CCL from1st January 2024 or from the date where the operator provides their assent to the proposed agreement if later than the 1st January 2024.
For further information please see the government’s consultation document.
Other Budget News
Also in the Budget, the Chancellor ‘transformed capital allowances to boost investment, increased support for R&D, and simplified the tax system for SMEs’.
HM Treasury highlighted changes to two major capital allowances, together worth £27 billion over the next three years and an effective £9 billion a year corporation tax cut for UK businesses.
Full Expensing (FE)
- This allows the deduction of 100% of the cost of certain plant and machinery from profits before tax. It is effective from 1 April 2023 to 31 March 2026.
- It applies to spending on main rate equipment, which includes but is not limited to, warehousing equipment such as forklift trucks, tools such as ladders and drills, construction equipment such as bulldozers and excavators, machines such as computers and printers, vehicles such as tractors, lorries and vans, office equipment such as chairs and desks, and some fixtures such as kitchen and bathroom fittings and fire alarm systems.
- FE means that companies can deduct 100% of the cost from their profits straight away – rather than more slowly over the life of the asset.
- Similar to the super-deduction, FE also results in a 25p tax saving for every £1 invested (19% x 130% super-deduction rate = 25%).
- Before the super-deduction and with the 19% Corporation Tax rate, companies investing £10m in main rate assets received a £342,000 tax saving in year 1. Under full expensing, on a £10m investment, a company will receive a £2.5 million tax saving in year 1.
- The long-term ambition is to make full expensing permanent.
The 50% first-year allowance (FYA)
- This lets businesses deduct 50% of the cost of other plant and machinery, known as special rate assets, from their profits during the year of purchase. This includes long-life assets such as solar panels and thermal insulation on buildings.
- The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. HM Treasury is extending it by three years to 31 March 2026. For each year following the first year, 6% of the remaining cost will be written off via Writing Down Allowances (WDAs).
- 50% FYA allows for faster relief than under the default WDAs-only regime, which is worth 6% each year, including year one.
- Again, the long-term ambition is to make 50% FYA permanent.
Find out more about other key announcements in the Spring Budget.
