Businesses should utilise capital allowances to bounce back and grow
Businesses looking to bounce back after the shattering effect of the pandemic have been given a huge boost with recent changes to capital allowances, including the introduction of the ’Super-Deduction’ for companies in the most recent Budget.
By using capital allowances like the Annual Investment Allowance (AIA), companies can claim against most qualifying plant and machinery expenditure allowing them to deduct the full value of the investment from their profits, thus reducing their corporation tax bill.
The AIA, was previously increased to £1,000,000 per annum from 1 January 2019, and will now remain at this level until January 2022. Once this temporary increase ends, the AIA allowance is set to reduce back down to £200,000.
From 1 April this year until 31 March 2023, companies investing in qualifying new plant and machinery assets will also be able to claim a 130 per cent Super-Deduction capital allowance and a 50 per cent first-year allowance for qualifying special rate assets. The Super-Deduction will enable firms to cut their tax bill by up to 25 per cent for every £1 they invest.
The Government is hoping the changes to capital allowances will stimulate investment in UK manufacturing and this will be a welcome change for many UK businesses who are looking to invest in new equipment, plant, machinery or in refurbishing commercial buildings throughout 2021.
This will not only provide an accelerated timing benefit but additional tax relief on expenditure incurred. The move is designed to encourage firms to spend money now before tax rates rise, with the relief due to end just as the main rate of Corporation Tax will increase to 25 per cent.
The policy will be especially popular with manufacturing, construction and utility firms that rely heavily on machinery.
Every year millions of pounds of tax reliefs go unclaimed by businesses and for those concerned about their cash flow position at this time, the tax allowances, reliefs and credits out there could play a vital role in helping companies to succeed in the difficult months ahead.
For help and advice on capital allowances, please contact Victoria Nicoll at WMT – Chartered Accountants today.