Capital allowances are claimed on purchases of equipment, machinery and business vehicles (e.g. vans or lorries) (known collectively as plant and machinery). These capital allowance claims provide tax relief by enabling you to deduct some or all of the value of the item from your profits before you pay tax.
To kickstart the economy post-Covid, from 1 April 2021 to 31 March 2023, there is also a super deduction at 130% available on most new plant and machinery expenditure that would ordinarily qualify for writing down allowances at the main rate of 18%. Furthermore, a new first year allowance of 50% will be available for most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances.
It is important to ensure that the assets qualify for capital allowances for example please note that second hand assets, assets held for leasing and assets purchased from connected parties are excluded from the allowance, as the assets must be new, not just new to you. Unfortunately, the mini-Budget in 2022 did not extend the period of relief beyond 31 March 2023 so this deadline needs to be borne in mind if you are to take advantage of the current concession.
For relevant expenditure in a period that straddles 1 April 2023, the super-deduction percentage is reduced from 130% to reflect the proportion, based on the number of days, of the period falling after 1 April 2023. Therefore, depending on the accounting period end, spend after 2 April 2022 will attract a super-deduction of less than 130%. For example, a company with a 31 December year end that incurs expenditure on 1 January 2023 would only receive a super deduction of 107%, whereas if the same expenditure had been incurred on 31 December 2022 it would have received 130%. The date on which expenditure is incurred could therefore become important.
Also, businesses established in Freeport zones will be entitled to claim enhanced capital allowances of 100% for qualifying plant and machinery spend up to 30 September 2026. However, with the ‘super deduction’ of 130% available for all businesses on qualifying plant & machinery in the short term, the benefit of this relief will only be felt for qualifying expenditure after March 2023.
Timing of capital expenditure will determine relief due, and the impact of this on any capital expenditure incurred can be complex – bear in mind also that where a super deduction is claimed, the asset on which it is claimed must be tracked as a disposal of it will result in a clawback of the super deduction.