Companies investing in qualifying new equipment and machinery can benefit from helpful capital allowances.
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 three main types of capital allowances:
- Annual Investment Allowance (AIA) – provides a 100% write-off in the year of expenditure. It can be claimed on most items of plant and machinery, but is not available in respect of cars
- Writing Down Allowances (WDAs) for plant and machinery – covering most capital equipment used in a trade
- Structures and Buildings Allowances (SBA) – covering the construction and renovation of non-residential structures and buildings
All change for capital allowances
Businesses deduct capital allowances when calculating their taxable profits.
Between 1 April 2021-31 March 2023, they were 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
From 1 April 2023- 31 March 2026, companies incurring qualifying expenditure on the provision of new plant and machinery can claim:
- a 100% first-year allowance for main rate expenditure, or
- a 50% first-year allowance for special rate expenditure.
These temporary allowances may be extended beyond 31 March 2026.
Making the most of the various allowances available
As mentioned, in addition to the new plant and machinery allowances, companies can use the Annual Investment Allowance (AIA) for purchases of second-hand equipment. In the Spring Budget 2023 its £1 million cap was confirmed as permanent.
In addition, the first-year allowance for electric vehicle charge points has been extended until 31 March 2025 for corporation tax and 5 April 2025 for income tax.
Freeport tax sites and 12 new investment zones (the latter announced in the Spring 2023 Budget) will also give companies can access to new Enhanced Capital Allowances (ECA+), Structures & Buildings Allowance (SBA+) in England and secondary Class 1 NIC relief.
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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