For expenditure incurred from 1 April 2021 until the end of March 2023. Which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023 for companies
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 ordinarily tax-deductible. 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: o Add £200 (depreciation expense) to £1,000 (accounting profits) = £1,200 o 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.
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 plant and machinery assets investments. Both will allow investing companies to lower their corporation tax bills.
What are plant and machinery?
Most tangible capital assets used in a business are considered plant and machinery to claim capital allowances. There is not an exhaustive list of plant and machinery assets. The kinds of assets that may qualify for either the super-deduction or the 50% FYA include, but are not limited to:
- Solar Panels
- Computer Equipment & Servers
- Tractors, Lorries, Vans
- Ladders, Drills, Cranes
- Office Chairs & Desks
- Electric Vehicle Charge Points
- Refrigeration Units
- Foundry Equipment more detail on the eligibility of different types of Investments for different types of Capital Allowances is set out in the table below.