This afternoon Chancellor Rishi Sunak announced a new tax “super-deduction” policy to encourage investment into the UK and boost its recovery from the pandemic.
The new form of relief will come into effect next month and last until the end of March 2023, and should be especially popular with manufacturing, construction and utilities firms.
Shares in telecoms provider BT, which is in the process of upgrading its infrastructure, rose 6.4 per cent on the back of the announcement.
According to estimates, HMRC could miss out on as much as £29bn as a result of the policy, but the Office of Budgetary Responsibility said it could just bring forward investment slated for the end of the decade.
Under the scheme, companies investing in qualifying new plant and machinery assets will benefit from a 130 per cent first-year capital allowance.
Investing companies will also benefit from a 50 per cent first-year allowance for qualifying
special rate (including long life) assets, the Treasury said.
This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
Business groups welcomed the “super-deduction” policy, saying that it would encourage firms which could do so to spend their money now, aiding the UK’s recovery.
Melissa Geiger, KPMG UK’s head of tax policy, said: “The super-deduction will be welcomed by businesses, particularly those outside of London in the manufacturing sector.
“In the short-term, the Chancellor will hope this initiative will provide businesses with the confidence to invest any cash now rather than waiting.”
The relief will end before the higher rate of corporation tax comes in in 2023.
Dr Adam Marshall, director general of the British Chambers of Commerce, said that the policy would “blunt” the impact of coming higher business tax rates.
“We particularly welcome the massive ‘super-deduction’ investment incentive that the Chancellor has put in place for the next two years”, he said.
“This responds directly to our call to encourage those businesses that can to invest and grow.”