The impact of coronavirus on all business is well documented, with each sector and business affected in its own way. As we begin to move out of lockdown and UK plc readies itself for re-opening, even this pending wonderful event comes at a cost for business - it’s not just a question of flipping the sign gathering dust on the door to ‘open’. Social distancing measures remain in place and therefore businesses are having to adapt their premises and provide PPE to be compliant and ensure a safe environment for both staff and customers. This of course comes at a no small cost and is yet further outlay from already depleted cash reserves.
Is there an opportunity for Treasury to ease this particular burden on already stretched businesses?
From a tax perspective, businesses may potentially treat this expenditure as temporary and benefit from revenue-related reductions. Given a high proportion have suffered financially this year, additional revenue-related tax deductions may just enhance a loss and have a cash flow benefit at some point in the future – which may be too late! Similarly, if this is capital expenditure and tax relief is therefore from capital allowances, the benefit is not immediate or indeed, may again just be increasing a loss.
What if expenditure incurred on implementing these measures could be given the lofty status as qualifying for a temporary enhanced capital allowance - with a writing down allowance of 100% applied to eligible expenditure? This would rapidly accelerate tax cash flows and help to reduce this particular compliance burden.
How does this help business making a loss? As part of these measures, any loss-making business would be able to surrender the allowances in exchange for a cash tax credit. For example, surrendering £100,000 of allowances for say a generous 19% credit would give business a welcome cash boost of £19,000. Such a tax cash credit would be a most welcome boost for businesses, particularly when set against the April 2020 removal of the tax incentive for investment in energy-efficient plant and machinery (and associated tax cash repayment for loss making businesses) and the forthcoming cut on 1 January 2021 in the Annual Investment Allowance from £1m to £200,000, which provides 100 per cent tax relief for expenditure on plant and machinery.
Implementing this policy would be very popular with the taxpayer and provide well needed cash for businesses, but at what cost to Treasury coffers? Over to you Chancellor.