Ultimate Guide to Capital Allowances and Super-Deductions

Publish on:
06/04/2021
Article written by: 
Lucy

What are Capital Allowances?

Capital allowances are a way of allowing taxpayers to write off the cost of certain capital assets such as equipment, vehicles, furniture etc. These allowances are deducted when working out the taxable profit of the business.

Change to Capital Allowances in the budget

On 3rd March 2021, the Chancellor announced that there would be a new 130% first-year capital allowance for qualifying plant and machinery assets; and a 50% first-year allowance for qualifying special rate assets for COMPANIES ONLY.

What are Plant and Machinery assets?

Examples of plant and machinery for capital allowance purposes are:

  • Computer equipment
  • Office chairs and desks
  • Tractors, lorries, vans (but not cars including electric cars)
  • Ladders, drills, machinery
  • Solar panels

Excluded assets

Motor cars and plant acquired by equipment lessors are specifically excluded from the super-deduction.

The detail:

Essentially, from 1 April 2021 to 31 March 2023, companies who invest in qualifying new plant and machinery assets will benefit from a new first year allowance. This means companies can now choose one of four significant capital allowances:

The super-deduction – which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023

The 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023

Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold, until 31 December 2021 – this is available for ALL businesses

Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+) and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026

There is more detail on the eligibility of different types of investments for different types of capital allowances set out in the table below:

Disposal of assets on which the super-deduction has been claimed

When an asset is disposed of there will be a clawback charge of up to 130% of the disposal proceeds depending on the date of disposal.

Temporary Annual Investment Allowance (AIA) extension

There is currently a temporary £1,000,000 limit for AIA. This has been extended for one year to 31 December 2021.

Useful links

You can find more information about calculating your tax and other accountancy matters in our blog: https://farnborough-accountants.co.uk/blog/

The source of the material described in this blog is sourced from our own manuals and HMRC.

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