Expenditure on eligible new and unused plant and machinery incurred between 1 April 2021 and 31 March 2023 by limited companies is eligible for a 130% super-deduction first year allowance
These assets are individually identified and tracked and do not enter the main or any other ‘capital allowances’ pool. This is because special rules apply when they are subsequently sold or disposed of (see below). Enhanced super-deduction reliefs are now available for certain investments.
From 1 April 2023, companies may be eligible to claim normal capital allowances (18%/6%) and Annual Investment Allowance (AIA) up to its permanent limit set to £1m on plant and machinery.
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. This upfront super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest. Investing companies will also benefit from a 50% first-year allowance (FYA) for qualifying special rate (including long life) assets.
Companies can claim in the period of investment:
Capital investment must be in new and unused assets that qualify as main pool expenditure, subject to some specific exclusions. This will include expenditure such as solar panels, tractors, lorries and vans, fire alarm systems, security systems, carpets, computer equipment and servers, office desks and furniture, refrigeration units and electric vehicle charging points.
More details are included within Finance Bill 2021 to amend Part 2 CAA 2001.
Yes, certain expenditures will be excluded. The general exclusions at s46 will apply.
No deduction is available for used and second-hand assets and expenditures on contracts entered prior to 3 March 2021 even if expenditures are incurred after 1 April 2021.
Assets used wholly within a ring-fence trade will be excluded from the super-deduction, as they already have a 100% allowance, with assets used partly in a ring-fence trade temporarily qualifying for a 100% FYA.
Plant and machinery expenditure which is incurred under a hire purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief. These conditions are specified within CTA 2010 section 1129.
No deduction is allowed:
The rate of the super-deduction will require apportioning if an accounting period straddles 1 April 2023. The rate should be apportioned based on days falling prior to 1 April 2023 over the total days in the accounting period.
Apart from the enhanced expenditure, another positive aspect of the super-deduction is that there is no cap, unlike with AIA. It is possible to bring forward the financial year end of the company to benefit from the greater corporation tax savings earlier. On the other hand, companies planning to invest nearer to 31 March 2023 may want to delay the spend to get the higher corporation tax rate savings which will be 25% CT rate, applicable from 1 April 2023.
Yes, amendments will be made to Chapter 5 to bring in new disposal rules that will apply to assets that have been claimed to these allowances. Disposal receipts should be treated as balancing charges (taxable profits), instead of being taken to pools.
If the disposal takes place before 1 April 2023, a special balancing charge calculation is needed for assets on which the super deduction was previously claimed: in simple terms, the disposal value for the year of sale is 1.3 times the sale proceeds of the asset. Where a chargeable period commences before 1 April 2023 and the disposal takes place after 1 April 2023 within that chargeable period a factor based on the number of days before/after the relevant date is required. For any disposals for chargeable period that commences after 1 April 2023 the factors does not apply. Considerations are also required in relation to disposals of assets that have qualified for the SR allowance.
If the relevant amount is less than the total disposal value for the item, then the remaining amount of the disposal value is taken to the main rate pool.
Yes, an anti-avoidance provision applies to counteract arrangements which are contrived, abnormal, or lacking a genuine commercial purpose and existing rules at Chapter 17 apply, including the exclusion of connected party transactions from FYAs. Contracts already in place cannot be cancelled and then put into place again after 31 March 2021 with a view to achieving the new super-deduction.
Section 217 of CAA 2001 prohibits FYA if the relevant transaction happens by virtue of:
However, s230 provides exceptions for the above restrictions for manufacturers and suppliers. The conditions should be:
Two types of leases are recognised for accounting purposes: finance leases and operating leases. Finance leases are typically leases for most or all of an asset’s useful life and in commercial terms are equivalent to a loan. Operating leases are usually the simple hire of an asset for a short part of its useful life.
Super-deduction is not available to partnerships and sole traders. Businesses which are considering making a substantial investment may consider incorporating but the decision should be driven on commerciality rather than taxation. Furthermore, one must not forget that the rate of corporation tax is increasing from 19% to 25% from 1 April 2023.
Additionally, one of the other important changes for corporate clients to watch out for this year is the reforms announced to the Research and Development Tax Reliefs effective from 1 April 2023. ACCA wrote to members for their comments on these proposed changes and we are in the process of replying to HMRC with our members’ feedback which will be sent by 13 March 2023.