By Michelle Morris on 08/04/2021 12:00:00

Super Deduction - are you shopping for new assets yet?

New Capital Allowances following COVID

If your business has struggled during the COVID pandemic, you’re not alone. A report published by the Centre for Economics and Business Research in March 2021 estimated that COVID had cost the UK economy £251 billion to date. *

The 2021 budget announcement therefore included news of four new Capital Allowances to support businesses post-COVID and encourage capital spending over the next few years. These changes are temporary and have been announced in the hope they will support and stimulate commercial opportunities for growth.

So, what are ‘Capital Allowances’ and how can they affect your business?..

Capital Allowances come into effect when businesses calculate their taxable profits. These allowances enable taxpayers to write off the cost of specific capital assets against their taxable income.

Capital Allowances are usually broken down into two categories –

  • Writing Down Allowances (WDAs) – applicable for most plant and machinery equipment.
  • Structures & Building Allowances (SBAs) – applicable to the construction and renovation of non-residential structures and buildings.

Most capital allowance schemes can only be utilised by companies that pay corporation tax and aren’t available to individuals, partnerships or LLPs. However, anyone can benefit from the Structures & Building Allowances.

The NEW Capital Allowances…

The four new Capital Allowances announced in the 2021 budget make the UK’s capital allowance arrangements more internationally competitive than ever before.

  • Super-deduction

The super-deduction scheme provides 130% relief to corporation tax paying businesses when purchasing new (not used) qualifying plant and machinery between 1st April 2021 and 31st March 2023.

For example: If you spend £100,000 on eligible equipment within the correct timeframe, the super-deduction scheme will result in £130,000 deduction from your taxable profits.

  • 50% First Year Allowance (FYA)

This scheme has been introduced for the same time frame, offering a 50% first year allowance acceleration of relief for special rate pool assets.

  • Annual Investment Allowance (AIA)

This has been increased to its highest ever threshold offering 100% relief for plant and machinery investments up to £1 million, until 21st December 2021.

  • Structures & Building Allowance (SBA)

The Structures & Building Allowance can be accessed by companies, individuals and partnerships on investments up to 30th September 2026.

The government estimates that these new allowances will result in tax savings of up to 25p for every £1 of investment made.

What do you need to do?

Now could be the perfect time to review your company’s capitalisation policy taking into consideration that it is currently more beneficial to capitalise as much as possible, within accounting rules.

It’s important to understand which investments qualify before making purchases. Please note that only new equipment is covered – not second-hand or used items. These allowances do not cover cars. The table below has been designed to help, but these lists are not exhaustive. Please contact contact.capitalallowances@hmrc.gov.uk for specific clarification.

At Ellacott Morris we have been investigating this new tax legislation ensuring our advice is as beneficial as possible to our clients. If you’re unsure how to proceed with future capital investments or you’re confused as to how these new allowances could save your business money, then contact our team of experts today. We’re here to help and are ready and waiting to guide you through these changes over the next few years.

*https://www.theguardian.com/business/2021/mar/22/a-year-of-covid-lockdowns-has-cost-the-uk-economy-251bn-study-says

By Michelle Morris on 08/04/2021 12:00:00