Capital allowances can be claimed when purchasing tangible capital assets to use within a business, enabling the cost to be written off against taxable income.

Companies are now able to benefit from four significant measures that will allow them to lower their corporation tax bills while helping to stimulate business investment. These measures include the 130% super-deduction and 50% first year allowance, both of which are new capital allowances for investments in qualifying assets.

Capital allowances can be claimed on items that are kept for use within a business – this could be on ‘plant and machinery’ or on ‘integral features’.

Annual Investment Allowance (AIA)

The Government has extended the temporary £1 million level of the AIA to 31 March 2023.

This extension means that businesses with high levels of capital expenditure can continue to claim up to £1,000,000 AIA in the same chargeable period for investments in plant and machinery assets. Claims can only be made for AIA in the period in which the item was purchased.

Businesses should deduct the full value of an item that qualifies for AIA from their profits before tax. Claims can be made for most plant and machinery purchases, up to the AIA amount, click here to view qualifying expenditure.

The Super-Deduction

The 130% super-deduction enables companies to claim 130% first-year relief for most new plant and machinery investments that normally qualify for 18% main rate writing down allowances.

50% First-Year Allowance (FYA)

This capital allowance for investments in integral features offers a 50% FYA for expenditure on new assets that would normally qualify for 6% special rate writing down allowances.

These temporary measures apply to qualifying expenditure incurred from 1 April 2021 up to and including 31 March 2023.

With these new measures due to end on 31 March 2023 and corporation tax rates increasing to 25% on 1 April 2023 for companies with profits in excess of £50,000 (or even lower where there are associated companies), careful consideration should be given to the timing of future expenditure to ensure capital allowances are claimed in a tax efficient manner whilst not adversely impacting on future cashflows and corporation tax liabilities. We can provide assistance with this.

For further details on these allowances please download our factsheet below.