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NEW Super-deduction & first-year allowances from 1 April 2021


We would like to make you aware of some exciting news from the Government related to fixed asset purchases between 1 April 2021 and 31 March 2023 – you can now get super-deduction and increased first year allowances.

Who can claim?

Limited companies paying corporation tax ONLY.


(NEW) SUPER-DEDUCTION: How much can you claim?

130% of qualifying expenditure on NEW and UNUSED main rate plant and machinery purchases from 01 April 2021, for the next two years.


This means that you will get additional corporation tax relief on 30% of the cost of the asset. If you buy an asset for £100,000 you will get an additional tax relief on £33,333 which equates to extra £6,333.27 in tax saving (current corporation tax rate is set at 19%).


Which assets qualify for the super-deduction of 130%?

Most tangible capital assets bought for everyday use in the business qualify as plant and machinery for the purposes of claiming capital allowances.

Some examples are:


· Solar panels

· Fire alarm systems

· Security systems

· Bathroom sanitaryware

· Carpets

· Computer equipment and servers

· Tractors, lorries, vans

· Ladders, drills, cranes

· Office chairs and desks

· Electric vehicle charge points

· Refrigeration units

· Compressors

· Foundry equipment



Example

Company buys £2 million of main rate qualifying expenditure and claims the super-deduction.

£2.6 million deducted from profits (£2 million x 130%).

£494,000 saving on corporation tax bill (19% of £2.6 million)


(NEW) FIRST-YEAR ALLOWANCE: How much can you claim?

50% of qualifying expenditure on NEW and UNUSED special rate plant and machinery purchases from 01 April 2021, for the next two years.


Which assets qualify for the first-year allowance of 50%?

Some examples are:


· Heating and cold water systems

· Electrical systems

· Air conditioning systems

· Lifts

· Thermal insulation to an existing commercial building

· Solar shading

· ‘integral features’ which would ordinarily qualify for special rate allowances


Example

Company buys £2 million of qualifying special rate expenditure and claims the first-year allowance.

£1 million deducted from profits (£2 million x 50%).

£190,000 saving on corporation tax bill (19% of £1 million)

What about assets on hire purchase or finance lease?

Finance lease – NOT ELIGIBLE

Hire purchase – ELIGIBLE – but to claim the capital allowances on all payments due to be made the asset must have been brought into use.

E.g. if a deposit is paid in one company year (2021) and then the balance is funded under hire purchase in the following company year (2022) then the super-deduction claims on the deposit and balance are made in 2021 and 2022 respectively.


Which assets DON’T qualify for the super-deduction of 130% or the 50% first-year allowance?


Some examples are:


· Second-hand items (it must be new and unused)

· Cars

· Transactions with connected parties

· Items purchased for leasing (including landlords)

Important points

· There is NO LIMIT on the amount of equipment you can buy qualifying for the 130% super-deduction and 50% first-year allowance.

· Assets must be purchased on or after 01 April 2021 and before 01 April 2023.

· Hire purchase contracts qualify if ownership transfers to the business upon completion.

· Assets purchased under the super-deduction and then disposed of will have a balancing charge of between 100%-130% of the disposal proceeds, depending on when the asset is disposed of.

· These new allowances do not replace the annual investment allowance (AIA). It can still be used alongside them.

· DO NOT be tempted to cancel existing contracts/purchases made just before 01 April 2021 and then engage in new ones with the aim of qualifying for these new allowances. There are anti-avoidance rules in place!





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