Advice + Tax + Accounts for smart business owners.
December 15th 2021

Capital allowances: where are we now?

As we head into 2022, it's time for a quick recap on the Annual Investment Allowance and "Super Deduction".

130% SUPER-DEDUCTION FOR INVESTING IN NEW PLANT CONTINUES

Many businesses may have been too short of cash to take advantage of the new super-deduction for investing in new plant in 2021 but may be more confident about investing in 2022.

This tax break, which started on 1 April 2021 continues until 31 March 2023, allows companies to deduct 130% of the cost of new plant and machinery from their profits where that plant would normally be included in the general capital allowances pool.

If a company buys a new commercial vehicle costing £50,000 that means they can deduct £65,000 from trading profit saving £12,350 in corporation tax. Note that there would be a clawback charge on disposal of the asset, which could be as much as 130% of the proceeds.

There is currently no financial limit on the amount that the company spends on new equipment qualifying for 130% tax relief.

£1 MILLION ANNUAL INVESTMENT ALLOWANCE STILL AVAILABLE

Second hand plant and machinery does not qualify for the 130% super-deduction but would still qualify for the 100% Annual Investment Allowance (AIA).

The amount of expenditure qualifying for 100% tax relief was originally scheduled to revert to just £200,000 from 1 January 2021 but will now continue at £1 million until 31 March 2023.

Although the 130% super-deduction only applies to limited companies, the AIA is available to sole traders and partnerships as well.

Remember that there is currently a further 100% first year allowance for the cost of buying a new zero emission car for the business.

Previously 100% relief was available where the CO2 emissions of the car were no more than 50g per kilometre. However, that threshold changed in April 2021.

Contact us with any questions about the capital allowances regime and your business.

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