Date
16 May 2022Category
TaxWhat capital allowances are currently available?
There is a super deduction available to companies for qualifying expenditure incurred on new plant and machinery between 1 April 2021 and 31 March 2023. A 130% first year allowance is available on main pool qualifying assets and a 50% first year allowance for special rate assets such as integral features in buildings. Expenditure on used and second-hand assets would not qualify for the super deduction.
For sole traders and partnerships or companies where appropriate a 100% Annual Investment Allowance (AIA) is available on purchases of plant & equipment up to a limit of £1,000,000 per annum, for the period to 31 March 2023. From 1 April 2023 it reverts to the normal level of £200,000 subject to any further temporary extension or other changes currently being considered by the government.
Expenditure in excess of the AIA qualifies for writing down allowances; the rate will depend on which plant pool the capital items are allocated to:
Get the timing right
When a business purchases new or replacement plant or equipment, capital allowances are available which can reduce the taxable profits, and therefore the tax liability.
The allowances are only available if the business has technically purchased the equipment in that financial year and is carrying on a qualifying trade, profession or vocation. There are restrictions on what is considered the date of purchase and therefore the date the tax relief becomes available.
There is a general misconception that as long as an agreement is signed you will get the tax relief – this is not necessarily the case. The expenditure is treated as being incurred on the date the obligation to pay becomes unconditional.
The rules can be summarised as follows:
Purchase method |
Tax relief on |
|---|---|
|
Buy on an unconditional contract (i.e. you must pay for the goods regardless) |
Date of signing |
|
Buy on a conditional contract (conditional on the goods being delivered) |
Date of delivery |
|
Payment 4 months or more after delivery |
Payment date |
|
Hire purchase |
Date of delivery |
Where the date of delivery would normally be the date on which the obligation to pay becomes unconditional this could be an earlier date if there is a special agreement as to terms of payment such as payment being due in full when the order is placed.
If goods are purchased on hire purchase and the agreement is signed before the year end, but the goods not delivered until after the year end, tax relief will not be available until the following year.
Planning
To ensure the tax relief you qualify for is not delayed, ensure you purchase machinery or equipment using your own funds or your overdraft facility. If you wish to refinance as a separate exercise at a later date, ensure the refinancing, either by way of bank loan or hire purchase arrangements over existing machinery, is done as a separate exercise from the purchase of a specific piece of equipment if the amount is significant or obtaining the tax relief at an early date is important to you. To avoid monetary and/or relief losses, advice should be taken on special agreements prior to commitment.
The timing of your capital spend and which capital allowance claim to make can potentially help save a significant amount of taxes for you/your business.
Speak to your local Azets advisor to find out more.
