The window on claiming generous tax reliefs on capital expenditure is shortly to close. Businesses planning to invest and purchase new plant and machinery are encouraged to do so before 31 March 2023 to take advantage of this valuable relief.
A super deduction on capital expenditure was introduced by the Government in its 2021 Budget alongside the Special Rate allowance. Its intention was to encourage UK companies to invest in plant and machinery to boost the economy post-Covid and make UK businesses more competitive internationally.
The super deduction allows companies to claim 130% of the purchase price of qualifying assets as tax relief, and the special rate allowance allows companies to claim 50% of the purchase price of qualifying asset purchases as tax relief.
The super deduction and the special rate allowance only applies to the purchase of new, unused plant and machinery.
Businesses are often surprised at both how generous the scheme is and the extent to which assets qualify.
The super deduction, for example, extends to the purchase of assets that include solar panels, tractors, lorries, vans, drills, cranes, foundry equipment, computer equipment including servers and even office desks and chairs.
The special rate allowance also applies to new plant and machinery which would qualify for the 6% special rate pool allowance, typically integral features such as lighting, heating and air conditioning.
Unlike AIA, there is no limit on the amount of capital investment that can qualify for the super deduction. It should, however, be noted that the super deduction and the special rate allowance does not apply to petrol, diesel, hybrid or fully electric cars.
The super deduction in practice
Take, for example, a construction company with profits of £500,000 a year wishing to purchase an excavator costing £75,000. If that excavator is purchased in this tax year, before the 31 March 2023, the super deduction will see taxable profits reduced by £97,500. If purchased on 1 April 2023, taxable profits will be reduced by just the £75,000 purchase price.
The Government has given no indication that this super deduction will be extended beyond the end of March 2023, although a Budget statement is planned for 15 March. Moreover, with corporation tax rates increasing from 19% to 25% from 1 April, businesses planning significant investment may wish to accelerate those plans to take advantage of this relief.
As always, it pays to speak to your accountant or tax adviser when thinking about taking any action. If you would like some help with this, please speak to our capital allowances expert on the details below.