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Make the most of bigger tax breaks when buying new equipment

Companies investing between 1 April 2021 and 31 March 2023 in qualifying new equipment and machinery can now benefit from sizeable new first-year capital allowances.

7 April 2021

 

Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax-deductible.

There two main types of capital allowances:

  • Writing Down Allowances (WDAs) for plant and machinery - covering most capital equipment used in a trade; and
  • Structures and Buildings Allowances (SBA) - covering the construction and renovation of non-residential structures and buildings

 

New first-year capital allowances

Businesses deduct capital allowances when calculating their taxable profits and from 1 April 2021, they will be able to claim:

  • a 130% super-deduction capital allowance on qualifying new plant and machinery investments
  • a 50% first-year allowance for qualifying special rate assets

 

In a bid to boost investment in the Economy, the Government has enhanced the tax deduction rates for investments in main-rate assets. Those that previously qualified for the 18% writing down allowance (WDA) will qualify for the 130% super-deduction, while investments in assets previously qualifying for 6% WDAs will now benefit from the 50% first-year allowance.

It means under the super-deduction, for every pound a company invests, their corporation tax is cut by up to 25p.

 

Making the most of the various allowances available

The super deduction is for purchases of new equipment and there is currently no proposed cap on the level of investment which qualifies for the 130% rate. 

For purchases of second-hand equipment, companies can still use the Annual investment Allowance (AIA). Its £1 million cap will remain in place until 31 December 2021.

Also within the new Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+) and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026.

Full details about the qualifying criteria and process for these new allowances has yet to be published.  For now, information and worked examples can be found here and here.

 

Can we help?

If you are planning to invest in new equipment, IT systems, office furniture, lorries or vans, solar panels etc do get in touch for advice on making the most of the new allowances and tax savings.

 

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

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