Is your business taking advantage of 'super capital allowances'?
Last year’s spring Budget provided a somewhat unexpected boost for companies planning to invest in new assets with the introduction of ‘super capital allowances’.
The enhanced relief is designed to encourage business investment, which is at historically low levels. There has been a significant slowdown of productivity since 2008 and the super-deduction gives businesses ‘a strong incentive to make additional investments, and to bring planned investments forward.’
What are super allowances?
These new allowances are in addition to the existing Annual Investment Allowance (AIA) which, until 31 March 2023, permits 100% relief for up to £1m of expenditure incurred each year on qualifying plant and machinery assets.
- The super deduction - A new 130% first year allowance for expenditure on main pool qualifying assets such as machinery, furniture, fittings, computers etc. Previously relief was at 18% per annum.
- Enhanced special rate – A new 50% first year allowance for special rate assets including integral features in buildings such as electrical, water and heating systems. Previously relief available at 6% per annum.
Cash tax savings are available to all companies and individuals, whether they are a UK resident or not. The tax relief identified can be offset against taxable profits if you pay UK corporation tax or UK income tax.
Who can claim super allowances?
The new allowances are available to limited companies and can be claimed for qualifying expenditure incurred between 1 April 2021 and 31 March 2023.
Exclusions:
- Sole traders, partnerships, and LLPs.
- Expenditure incurred under a contract entered before 3 March 2021.
- Not available for second-hand assets.
Super allowances in practice
- A company incurring £1m of qualifying expenditure decides to claim the super-deduction.
- Spending £1m on qualifying investments will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits.
- Deducting £1.3m from taxable profits will save the company up to 19% of that – or £247,000 – on its corporation tax bill.
Key considerations
- Disposal proceeds for the sale of assets where super allowances have been claimed will be taxed in full as a balancing charge.
- Any sale of a super deduction asset before 31 March 2023 will be subject to an enhanced disposal value calculated by a multiple of 1.3. A tapered multiple is then applied to disposals in accounting periods which straddle 1 April 2023.
- Any sale of an enhanced special rate asset will trigger a balancing charge equal to 50% of the disposal value.
- Business owners should look carefully at the timing of planned investment in new assets to take full advantage of the enhanced allowances. Up to 31 March 2023, the additional tax savings through super allowances will be most beneficial to companies that have already absorbed the 100% relief available through the AIA.
Get in touch
The Azets capital allowances team are made up of multi-disciplinary specialists that include chartered surveyors, tax advisors and accountants. This means we understand construction and valuation matters, as well as how to interpret necessary case law and complex tax legislation to maximise and accelerate the relief.
For more information or to discuss how to take advantage of ‘super capital allowances’, please get in touch with our specialist capital allowances team today.
