Further to the change made in the budget earlier this year a super-deduction and special rate first year allowance has been introduced for qualifying expenditure on plant or machinery incurred by companies from 1 April 2021 to 31 March 2023. These are both new forms of capital allowances and are a couple of the measures announced by the Chancellor designed to stimulate business investment.
Companies are entitled to a deduction of 130% on new plant or machinery that is not special rate expenditure i.e. it would ordinarily qualify for the 18% main rate writing down allowance. In short, this will generate a reduction in tax of 24.7p for every £1 spent.
Special rate first year allowance
Companies are entitled to a first year allowance of 50% on new plant or machinery that qualifies as special rate expenditure e.g. hot and cold water systems and other “integral assets”. This will generate a reduction in tax of 9.5p for every £1 spent.
What is plant and machinery?
Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks,
- Electric vehicle charge points
- Refrigeration units
- Foundry equipment
It is important to note that in order to qualify for either relief, the asset must be brand new and not second hand.
Unfortunately the reliefs mentioned above do not apply to unincorporated business, however unincorporated businesses will continue to benefit from the Annual Investment Allowance (AIA) which permits a deduction of 100% for qualifying plant or machinery expenditure. The AIA currently stands at £1m and will continue to apply until the end of 2021, at which point it is expected to revert back to £200,000.
If you would like further information then please do not hesitate to get in touch with us to discuss further.