On the 3rd March 2021, HMRC announced the introduction of a new 130% first year capital allowance for qualifying plant and machinery, along with a 50% first year allowance for qualifying special rate assets for companies subject to Corporation Tax.
This is due to end on 31st March 2023.
Companies should therefore begin planning how to make effective use of the final few months of this enhanced tax relief. Where there are planned future purchases of plant and machinery, it would be valuable to identify whether these purchases can be brought forward and made in the first quarter of this financial year.
To ensure the benefit of super deduction is obtained, the timing of delivery of the plant and machinery is important. Per HMRC Manual CA11800, Capital Allowances should be claimed when the obligation to pay becomes unconditional. HMRC’s definition of this is when the goods are delivered. When the goods are delivered, the supplier has then fulfilled their part of the contract. This means that the buyer incurs capital expenditure as soon as the goods are delivered.
We recommend that companies ensure they are in the position to accept delivery of the plant and machinery pre–March 2023 and negotiate with suppliers on this, where possible. The plant and machinery should be new and unused to qualify.
Following the ending of this enhanced tax relief, we see Capital Allowances return to their usual options of:
- Annual Investment Allowance (AIA)
- 100% First Year Allowance
- Writing Down Allowance
AIA, currently set at a temporary limit of £1,000,000, was due to revert to its previous limit of £200,000 on 1st April 2023. However, in the Autumn Statement of November 2022, it was announced that the planned reduction in AIA to £200,000 would be scrapped and instead the AIA limit would be permanently held at £1,000,000. This is good news for companies who heavily invest in capital expenditure, especially with the increase in Corporation Tax rates stepping in from 1st April 2023.
As previously, connected companies are only entitled to one AIA between them. Companies can decide between them how best to allocate that one AIA.
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