As we say goodbye to the super-deduction, what other capital allowances are available?
The super-deduction first year capital allowance was a great incentive for many companies to continue spending during a tough economic period. The 130% tax relief was introduced in the Spring 2021 Budget and ran between 1 April 2021 and 31 March 2023. Now this capital allowance has ceased, we take a look at other tax reliefs for companies purchasing plant and machinery: the new ‘full expensing’ capital allowance, and the £1 million Annual Investment Allowance, which has now been made permanent.
Full expensing allowance
In the Spring 2023 Budget, a new full expensing allowance was introduced as a super-deduction replacement. This option allows companies to claim 100% of the cost as a first-year allowance for qualifying main rate expenditure, or 50% for special rate expenditure, between 1 April 2023 and 31 March 2026.
Despite the reduced capital allowance percentage available on qualifying expenditure, the actual corporation tax relief should be almost identical due to the corporation tax rate increasing from 19% to 25%.
Timing of expenditure*
Corporation Tax Rate
Corporation Tax Relief
(QE x CAs x CT Rate)
31 March 2023
1 April 2023
*Assuming the company makes up its accounts to 31 March each year
To qualify for the full expensing capital allowance, the expenditure must be on items purchased between 1 April 2023 and 31 March 2026, which are new or unused at the time of purchase, not used for leasing activity or excluded under any other provision.
It’s worth noting that there are balancing charges that will be applied to any proceeds received on assets where super-deduction or full expensing has been claimed. The balancing charges will be equal to the percentage of capital allowances claimed, i.e. 100% for items that have claimed full expensing.
For accounting periods that straddle the 1 April 2023, when the full expensing allowances come into play, the timing of the expenditure will determine if super-deduction or full expensing is applicable.
What if my purchase doesn’t qualify for the full expensing allowance?
Alongside the new full expensing capital allowance, the temporary £1 million annual investment allowance (AIA) has now been made permanent. AIA offers 100% relief of the expenditure, which matches the allowance given by full expensing.
The difference of using AIA is you’re not as restricted by the qualifying criteria required for full expensing, nor will you be hit by the balancing charge if the asset is disposed of at a later date, providing that proceeds are lower than the tax written-down value on the relevant pools.
With this is mind, it may be more beneficial to utilise the AIA available first and then, once the £1 million threshold has been passed, begin using the full expensing capital allowance.
Please be reminded that the AIA comes with its own restrictions, and we recommend that you seek advice tailored to your company’s specific circumstances.
This guidance is based on draft legislation at the time of writing and subject to change.
For more information, please speak to your usual contact on 0330 024 0888 or email email@example.com.
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