The majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first portion of expenditure on most types of plant and machinery (except cars). The AIA applies to businesses of any size and most business structures, but there are provisions to prevent multiple claims.
The AIA will remain at £1,000,000 until 1 April 2023, when it reduces to £200,000 for expenditure incurred after this date. Complex calculations may apply to accounting periods which straddle this date. It is therefore important to time the purchase of plant and machinery carefully in order to make the most of the allowances available in light of the decrease.
Expenditure not covered by the AIA enters either the main rate pool or special rate pool, attracting writing down allowance (WDA) at a rate of 18% or 6% respectively. The special rate 6% pool includes cars with CO2 emissions exceeding 50g/km, long life assets and certain specified integral features of buildings.
Typically, a purchase made just before the end of the current accounting year will mean the allowances will usually be available a year earlier than if the purchase was made just after the year end. In the same way, the disposal of an asset may trigger an earlier claim for relief or even an additional charge to tax.
In addition, a capital allowances regime has been introduced for structures and buildings. The Structures and Buildings Allowance applies to nonresidential structures and buildings. Relief is available on eligible construction costs, at an annual rate of 3% on a straight-line basis.
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery may benefit from a new first year allowance (FYA). A company will be allowed to claim a super-deduction of 130% on certain new plant and machinery investments that ordinarily qualify for the 18% WDA and a special rate (SR) FYA of 50% on most new plant and machinery investments that ordinarily qualify for the 6% WDA.
Contact us for advice on how to optimise capital allowances for your business.
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