13 September 2021

How do capital allowances and the new super-deductions work?

The past year has posed unique challenges for many business owners. However, some businesses have pivoted and invested in response to the changes presented by lockdown.

As part of the country’s economic recovery following the pandemic, the Government has offered support to incentivise business investment. For those looking to make the most of the incentives available, it is important to plan ahead.

How does the capital allowance super-deduction affect my business?

The new super-deduction allowance gives businesses investing in qualifying equipment a much higher tax deduction in the tax year of purchase than would otherwise normally occur. Under the new rules, investments in plant and machinery can qualify for the following:

  • 130% capital allowance super-deduction
  • 50% first-year allowance for qualifying special rate assets

These rules came into play on 1 April 2021 and will end in March 2023, allowing businesses to cut their tax bill by up to 25p for every £1 they invest.

These allowances are available alongside the ongoing Annual Investment Allowance (AIA) which gives 100% relief for costs of qualifying plant and machinery in the tax year of purchase. The AIA limit was due to return to £200,000 from the start of the year but has now been kept at £1m until January 2022, meaning if you are looking to invest, the time is right now.

It’s important to note that the super-deduction may not always be the best option for you, despite how great it first sounds. You should speak with a specialist tax advisor in order to maximise the benefit to your business.

What can I claim the capital allowances super-deduction against?

If you are looking to claim the super-deduction the assets must be new plant and machinery equipment to be used in the business and not leased or rented to customers. These assets could include the following:

  • Computers and servers
  • Some vehicles, such as tractors, vans, and lorries but not cars
  • Refrigeration units
  • Solar panelling
  • Office desks and chairs
  • Foundry equipment

Can capital allowance be carried forward?

You can defer capital allowances and then choose to claim relief later on. However, we would recommend claiming your capital allowances within the year that you make the expenditure. If you don’t, you may miss out on other allowances, such as the Annual Investment Allowance.

Can capital allowance create loss?

In short, yes. There may be years where your business makes a loss. In this case, claiming capital allowances could create further losses. You may want to want to carry back the loss for the previous 12 months of trade, if you were in profit. You could also elect to carry forward losses to be offset against future profits.

What capital allowances can I claim on a car?

If you purchase a car or van and use it for business purposes, you can claim capital allowances against it. There are a number of factors that need to be taken into account when doing this, including the type of vehicle and whether you are an unincorporated business. You will need to declare who is using the vehicle and whether it is exclusively used for business or mixed personal use.

Can you claim capital allowances on a property?

You can claim capital allowances against commercial properties or furnished holiday lets, but not against any residential property, even if you let this property as part of your business. One of the biggest mistakes for business owners is forgetting to claim against the plant and machinery assets within the building they have just purchased. These can include security systems, emergency lighting, and sanitary ware.

How do you calculate capital allowances and balancing charges?

A balancing charge is a means of making sure you don't claim too much tax relief on the cost of an asset you buy for your business. For example, if you decide to sell an asset that you have previously claimed capital allowances for, and the value of the sale is more than the balance in the pool, you add the difference between the two amounts to your taxable profits.

At Haines Watts we have supported hundreds of businesses with managing their capital allowance claims. If you want to cut out the time and stress involved in your own tax administration, get in touch.