Are You Eligible For Tax Relief?
Investing in new plant and equipment? Your business may be eligible for tax relief.
As Charles Dickens’s famous opening line from A Tale of Two Cities goes: “It was the best of times, it was the worst of times.”
These days, not much has changed. Times are difficult for a multitude of reasons. However, companies may rejoice in the fact that there are also significant incentives available for investment in new plant and machinery.
The UK Budget held in March 2021 saw the announcement of a ‘super deduction’, which allows companies to claim up to 130% relief for expenditure on new qualifying assets.
How does this work? For every £100,000 invested in qualifying assets, businesses will receive a £130,000 deduction against taxable profits in the year of acquisition.
As with most things in life, there are conditions. First, the super deduction is not available to sole traders or partnerships. Second, the money must be spent on new equipment rather than second-hand.
Third, the super deduction won’t apply to expenditures on cars or assets qualifying for special rate allowances, such as integral features, including lifts, elevators, or heating, water, and electrical systems.
A limited-time offer
Most importantly, if your company’s expenditure meets the requirements for super deduction, contracts to purchase must be entered into after 31st March 2021 and before 31st March 2023 – on which date the opportunity ends. There is a clawback of relief if the assets purchased are sold before 1st April 2023.
What happens if your company’s accounting period straddles 31st March 2023?
The super deduction percentage is calculated as follows:
Number of days before 1st April 2023/number of days in the accounting period x 30 + 100. Example: for an accounting period ending on 30th September 2023, the calculation would be (182/365 x 30) + 100 = 114.95%
Annual Investment Allowance (AIA): an update
There is welcome news relating to the AIA, under which businesses can currently claim up to £1m of qualifying expenditure.
This amount was due to drop to £200,000 from April 2023, but the £1m of qualifying expenditure has been extended under the government’s Growth Plan, published in September 2022.
In summary, businesses can deduct the total value of the first £1m of qualifying expenditure from their taxable profits in the year of expenditure. AIA can be claimed on second-hand assets and assets qualifying for special rate allowances – except cars.
Unlike the super deduction, sole traders and most partnerships can claim under the AIA (note that trustees and mixed partnerships – those with at least one company as a partner – are ineligible).
The importance of professional advice
The super deduction and the AIA certainly offer valuable relief for companies planning to make significant capital expenditures.
However, as we have seen, there are different eligibility criteria and conditions relating to each. In cases where both can be claimed, careful consideration will be needed to ensure tax relief is effectively maximised.
Further planning may be needed in cases where trading losses arise from claiming the super deduction or AIA and around the best timing for future expenditures, particularly when transitioning from 2023 to 2024.
Please get in touch to learn more about the expert tax advice available at Rickard Luckin.
Neil Spicer
Tax Associate Rickard Luckin
Basildon 01268 548127
Chelmsford 01245 254200
Southend 01702 347771