Since the Covid-19 pandemic the levels of business investment have fallen with a year-on-year reduction of 11.6 %. Therefore, to counter this trend, the government has introduced a new Capital Allowance regime to ensure that the UK is more internationally competitive and to stimulate growth. Effective from 1st April 2021 until the end of March 2023, companies can now claim 130% Capital Allowances on qualifying plant and machinery investments. This means that under the Super-Deduction, every pound a company invests, their taxes are cut by up to 25 pence.
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 tax-deductible. Businesses deduct Capital Allowances when computing their taxable profits.
As a result of measures announced at this Budget, business will now benefit from four significant Capital Allowance measures:
Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming Capital Allowance. There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the Super-Deduction or the 50% FYA include, but are not limited to:
So, let’s look at some examples of the Super-Deduction in practice
Yes, you really did read that correctly, based on this example, there would be a further tax saving of nearly £2,000,000! The introduction of the new measures provides companies with a strong incentive to make additional investments and bring planned investment forward.
Other conditions to keep in mind
While both the super-deduction and FYA are generous as tax and business growth incentives, there are some exclusions that you should keep in mind in case they apply to your business:
We’re still here to support you
Like any new changes it’s important to properly consider the impact on your business and if you haven’t already done so, take advice. If you have any questions about how this works, we can help you figure it out. – as we always say, there are no silly questions.
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