In recent times we have seen an unprecedented level of investment in the Brewing & Distilling sector as producers seek efficiencies and capacity to meet demand. Whether you are a start-up, entering production for the first time, an existing producer expanding your capacity, or one of the majors, getting your capital allowances strategy right from the outset can have a significantly positive impact on your cash flow in the short and long term.
Depending on the size of your investment you may have the cash or, more typically, you will require some external debt to enable the project to be completed. So the less net cash you need to spend or the more you have to service your debt, the better it is for stakeholders.
Capital allowances on moveable plant and equipment are well documented and are a useful incentive for companies to invest, however not so commonly known or utilised are the opportunities to claim for embedded capital allowances. Following the Autumn Budget, certain new qualifying non-residential structures and buildings will be eligible for a 2% flat rate allowance over 50 years on original expenditure. This applies where all new contracts for the physical construction work are entered into on or after 29 October 2018.
Most projects differ substantially in nature and one size does not fit all. However having a strategy in place as early as possible gives you the best chance of maximising the best outcome. This involves a deep understanding of the project and all the costs (ground works/professional fees, plant, land, equipment and now on structures and buildings) to clearly understand what is qualifying and what is not. Many are surprised at what can qualify when the right approach is adopted by someone who has much experience in dealing with capital allowances.
Projects which include elements of energy saving giving rise to enhanced capital allowances are particularly attractive, couple these with short life assets, integral fixtures and granular cost apportionment results in a greater level of allowances being achieved saving cash, reducing debt or generating more free cash. However, time is of the essence for making claims on certain energy saving or environmentally beneficial assets as the 100% first year allowances will end from April 2020. Additionally, from April 2019 the special rate pool allowance reduces from 8% to 6% on certain additions such as integral features.
HMRC are taking a closer look at what assets are classed as qualifying and if your analysis and paperwork is not as robust as it should be you may be under potential threat of having some of your allowances disqualified. Long life assets treatment can be a hidden danger for the unwary. Proper consideration of the availability of the £200,000 Annual Investment Allowance (AIA) can bring forward tax relief in some situations. In particular, the AIA will be temporarily increased up to £1m for a two year period from 1 January 2019 therefore the timing of capital expenditure spend is crucial.
Think about capital allowances as early as possible, engage someone who has the experience and expertise to maximise them and you will benefit from additional cash flow.
If you would like to discuss the benefits of allowances or if your business can qualify please contact:
Partner and Head of Brewing & Distilling
0141 886 6644
This information should not be regarded as financial advice. This is based on our understanding in November 2018. Laws and tax rules may change in the future.