Last edited 04 May 2021

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Capital Allowances - Super Deductions

As part of the government’s postCovid recovery planning two new capital allowance reliefs are introduced effective from April 1st 2021. These reliefs which will run until March 31st 2023 are doubtless aimed to encourage spending on new plant and equipment for use in a business in any event, as well as to assist companies who need to undertake such expenditure as part of their own strategy to recover from the effects of the pandemic.

Please note that these provisions do not apply to individuals or partnerships.

Office furniture, computer equipment and items such as photocopiers, scanners and telephone equipment, secuirty systems and even carpeting all fall under the heading of plant and equipment

The two reliefs are:

A 130% super-deduction capital allowance qualifying plant and machinery and

A 50% first-year allowance (FYA) for special rate assets.

The 130% allowance is for assets that would normally qualify in the main pool for capital allowances with a writing down allowance (WDA) of 18%.

The 50% FYA is for assets that normally qualify in the special rate pool with a WDA of 6%. These are integral features such as air-conditioning, lifts and water heating systems.

Reorganising space to deal with the consequences of the pandemic may well mean a substantial outlay on capital items and these provsiions are designed to alleviate the financial costs associated therewith. The 130% allowance means that for every £100,000 of qualifying expenditure the deduction for copropration tax purposes is 30% higher than what is actually incurred. At a corporation tax rate of 19% (current at April 2021) this means an additional 5.7% tax saving on every £100,000 actually spent

Items which are considered to be general in nature i.e not long – lasting capital assets do not qualify for this treatment.

Unfortunately, cleaning items, hand sanitisers and PPE (disposable or reusable) typically fall under the general expenditure. Therefore, capital allowances would not usually be applicable to these items.

And finally If the assets are disposed of before April 1st 2023, a balancing charge will be due. This will allow HMRC to recover the tax relief given.

As the above provisions only apply to companies, for a a sole trader or partnership the Annual Investment Allowance (AIA) is more appropriate.

The AIA continues to be available alongside the new measures and remains at £1m until December 31st 2021 before dropping to just £200,000. The AIA covers leased and second-hand assets.

--Martinc 16:24, 04 May 2021 (BST)

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