The capital expenditure of a business is not deducted when arriving at the taxable profit. Instead tax relief is given in the form of Capital Allowances which have to be claimed. These provide a tax incentive to invest in qualifying plant and machinery.
Qualifying plant and machinery includes equipment, machinery and business vehicles. Certain qualifying items can however be missed, especially where they are property related and ambience is of importance to the trade.
The types of allowances available include:
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:
More details can be found here
100% relief for capital expenditure – subject to certain exclusions, notably cars (see below)
The AIA is pro-rated for long or short accounting periods.
Restrictions mean that groups of companies and, in certain circumstances, those under common control are entitled to a single AIA and so have to decide upon the allocation of the allowance between themselves.
Mixed partnerships (composed of both individuals and companies) do not get an AIA.
In addition to the AIA 100% relief is available on the following capital expenditure regardless of the length of the chargeable period:
Many FYA’s are restricted to expenditure within a specific period e.g expenditure incurred on:
Subject to what is said above, FYA’s cannot be claimed
WDA’s are given on a reducing balance basis
The WDA is proportionally reduced for accounting periods of less than 12 months in companies.
For individuals it is proportionally reduced or increased if the period is less that or more than12 months.
There are two rates:
The Special Rate applies to Integral Features (see below), long-life assets, thermal insulation of buildings , cars that are not “main rate” cars (see below) and solar panels.
The Main Rate applies to everything else.
Integral features are:
Rather than treating an asset as part of a general pool, assets with an expected life of under 8 years can be recorded and receive tax relief on an individual basis. Relief will be accelerated when they are disposed of or scrapped. An election in writing is required to take advantage of this accelerated relief.
Capital allowances on cars are based on the cars CO2 emissions.
Depending on the car (there are very detailed rules) capital allowances can be claimed as follows:
Cars do not qualify for AIA
New plant and machinery with an expected life of 25 years or more is allocated to the special rate pool,
These LLA rules do not apply where total expenditure does not exceed £100,000 per year (prorated for 51% group companies as well as accounting periods shorter or longer than 12 months)
SBA is given at the rate of 2% on a straight line basis on qualifying expenditure incurred after 28 October 2018 on new non residential structures and buildings where the construction contract is entered into after that date.
No relief is available on the cost of land, rights over land or on obtaining planning permission.
No balancing charges or allowances apply on a disposal.
It is a 2% allowance for the first 50 years. Other conditions apply.
Capital allowances are available at 100% on expenditure incurred on Research and Development
Most qualifying expenditure is pooled for purposes of WDA.
There are generally
When an asset is sold, a balancing allowance is given for any amount by which the sales proceed fall short of the unrelieved expenditure/poo.l. Where proceeds are less than the pool balance, a balancing allowance will however only arise on the main pool on a cessation of trade.
If the proceeds exceed the unrelieved expenditure a balancing charge arises
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