- For expenditure incurred from 1st April 2021 – 31 March 2023 companies can now claim a 130% super deduction of capital allowances on qualifying plant and machinery investments.
- This means that companies are receiving a 25p tax rate cut for every £1 invested in qualifying plant and machinery.
- This super deduction aims to stimulate investment and provide a strong incentive for companies to invest and bring planned investments forward.
- For example: A company invests £1m in qualifying expenditure computer equipment and servers, they can then claim 130% relief on this expenditure. So, the company can deduct £1.30m (130%) from the company’s taxable profits saving the company £247,000 of corporation tax at 19%. (£1.30m at 19%).
- Relief of 130% will require apportioning if the accounting period straddles 1st April 2023.
50% First year allowance (FYA)
- Other expenditure in which FYA can be claimed is also now subject to a 50% acceleration relief if the asset allocated to the special rate pool. Including long life assets up until 31st March 2023.
Annual investment Allowance (AIA)
- AIA allowance has gone up to £1m for qualifying plant and machinery until 31 December 2021.
The introduction of new capital allowance rates means companies can reduce their corporation tax bill accordingly.
Both reliefs are only available on new assets and not second-hand assets so businesses are restricted to what they can invest in.
Plant and machinery purchased under a hire purchase agreement must meet additional criteria to qualify for the reliefs.