The UK tax system of capital allowances has been with us since 1946. This important fiscal lever was designed to encourage businesses to invest in capital expenditure immediately after the Second World War. That economic objective still remains today.
Over the years, successive chancellors have made major changes and frequent tweaks to the capital allowances regime.
The 2021 budget could be described as a ‘big bang’ moment in its history. In a measure designed to stimulate capital spending as the UK slowly recovers from the Covid-19 disruption, Chancellor Rishi Sunak unveiled an unprecedented super deduction first year allowance of 130%!
This temporary tax break, falling under plant and machinery capital allowances, is available for new qualifying plant and machinery purchased between 1st April 2021 and 31st March 2023.
This means that the tax relief on £100,000 of eligible expenditure would be deemed £130,000 with a consequential corporation tax saving of £24,700 (19% x £130,000).
The super deduction is only available to companies. Sole traders and partnerships do not qualify and will therefore continue to rely on the existing AIA tax relief.
Super deduction first year allowance is available between 1 April 2021 and 31 March 2023, provides relief at the rate of 130% of the eligible expenditure incurred. It is important to appreciate that only new and unused assets qualify for this enhanced deduction.
As the super deduction is given by way of a first-year allowance [FYA], general exclusions apply to prevent certain types of expenditure qualifying for the relief. Notable cases include cars, however commercial vehicles and particularly vans do apply for the relief.
An interesting example of this is based on the new Land Rover Defender:
Land Rover Defender 110 Hard Top SE [Commercial Vehicle]
| £59,715 | on the road price |
| £9,953 | VAT Recoverable |
| £40,048 | Asset Value |
| £52,062 | Super Deduction Value |
| £9,892 | Corporation Tax Saving in First Year |
| £39,870 | True Cost of Vehicle to Company |
If you have a limited company and would like advice on how best to structure your affairs, mitigate tax or simply would like to know how we can help with your compliance, contact us today for a FREE no obligation business consultation.
