For expenditure incurred from 1st April 2021 until the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments.

Under the super-deduction, for every pound a company invests, their taxes are cut by up to 25p.

The new Capital Allowances offer as a result of measures announced at this Budget. Businesses will now benefit from four significant capital allowance measures:

The super-deduction

This offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023 for companies
The 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023 for companies

Annual Investment Allowance (AIA)

Providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold, until 31 December 2021.
Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+). Companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026

What are capital allowances?

Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally taxdeductible. Businesses deduct capital allowances when computing their taxable profits.

In translating its accounting profits into taxable profits, a business is usually required to ‘add back’ any depreciation, but can instead deduct capital allowances. For example, a corporation tax paying company with accounting profits of £1,000, depreciation expense of £200 and total capital allowance claims of £300 would make the following adjustment:

Add £200 (depreciation expense) to £1,000 (accounting profits) = £1,200

Deduct £300 (capital allowances) from £1,200 = £900 (taxable profits)

Apply the appropriate tax rate, e.g. corporation tax at 19%: £900 x 19% = £171 tax due

The two main types of capital allowances are:

Writing Down Allowances (WDAs) for plant & machinery – covering most capital equipment used in a trade; and o Structures and Buildings Allowances (SBA) – covering the construction and renovation of non-residential structures and buildings.

The 130% super-deduction and 50% first-year allowance are generous brand new capital allowances for investments in plant and machinery assets. Both will allow investing companies to lower their corporation tax bill

If you have any enquiries related to the super-deduction or have acquired any new commercial properties since April 2021 please do get in touch with a member of our team.

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