The 2021 Budget saw Rishi Sunak announce a new £25bn tax break for limited companies, aimed at kick-starting investment by providing 25 pence for every pound of spending on plant and machinery.
For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments up to the highest-ever £1 million threshold.
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 tax-deductible. Businesses deduct capital allowances when computing their taxable profits.
There are two main types of capital allowances:
- Writing Down Allowances (WDAs) for plant and machinery which covers most capital equipment used for a trade.
- Structures and Buildings Allowances (SBA) – covering the construction and renovation of non-residential structures and buildings.
What can I claim the super-deduction against?
Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. The kinds of assets which may qualify include:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks,
- Electric vehicle charge points
- Refrigeration units
- Foundry equipment
Example of the super-deduction in practice
A courier company wanting to reduce its carbon footprint spends £1million on electric vehicle charging points, hybrid vans and solar panels. Deciding to claim the super-deduction means the company can deduct £1.3 million (130% of the initial investment) when computing its taxable profits. By deducting £1.3 million from taxable profits will save the company up to 19% (or £247,000) on its corporation tax bill.
Can the super-deduction be used to buy second-hand equipment?
Used equipment is excluded from the super-deduction. So if you’re buying, buy new.
If you would like some advice on how your business could take advantage of this tax break, contact one of our accountants now.