Five key considerations ahead of the capital allowances super deduction ending

Five key considerations ahead of the capital allowances super deduction ending

Jonathan Scott discusses the steps owner managers need to take ahead of the capital allowances super deduction deadline on 31 March 2023.

In the wake of the pandemic, the Government introduced the 130% capital allowance super deduction to encourage investment and help the economy to bounce back.

And the statistics show that the super deduction did just that- with more businesses spending money investing in plant, machinery and assets over the course of the last two years in comparison to the years previous.

So, it’s somewhat disappointing that the Government hasn’t chosen to extend the relief, ahead of the super deduction end date, which is 31 March 2023.

Whilst we are set to see the next Spring Budget being announced beforehand (which could shed some light on a potential replacement for the relief, or another form of incentivising business investment), the capital allowances super deduction end date continues to draw closer.

With this in mind, what should businesses be doing to prepare in advance?

For Companies with a 31 March year end the following four steps are particularly relevant:

1. Can you bring your projects forward?

If you were planning on investing in your business within the near future, it’s worth considering if you can bring your projects and plans forward to make the most of the enhanced rate.

Even though the deadline for the super deduction end date is just over one month away now, the capital allowances super deduction can create a tax saving of 25p for every £1 spent. This could have a huge impact on your cash flow for the year ahead if you’re still able to make the most of the super deduction.

2. Review your expenditure

Qualifying expenditure can still be claimed retrospectively under the capital allowances super deduction after the deadline, if your qualifying items were bought between 1 April 2021 and 31 March 2023. Technically speaking, this means that the super deduction will remain in tact to some degree until 31 March 2025.

So now is the time to speak to your advisors and review your investments over the last few years, in order to make the most of the 130% rate.

3. Look at your contracts

Some larger items of equipment and machinery will understandably be paid for in separate instalments.
If your contract is unconditionally agreed on or before the end of the super deduction, you could have up to four months after the initial spend to still qualify.

It’s worth keeping in mind that you will need proof of this payment in case any enquiries from HMRC should arise further down the line, and there are also anti-avoidance provisions in place.

With this in mind, we would always recommend consulting an expert on the matter, to ensure you’re staying compliant whilst maximising the value of the relief.

4. Don't dismiss capital allowances post-super deduction

Even though the super deduction is coming to an end, capital allowances shouldn’t be dismissed as part of your planning process for the year ahead. For businesses with over £250,000 of profit, corporation tax will increase from 19% to 25% as of 1 April 2023 - a tapered rate will apply for with profits of between £50,000 and £250,000. 

It’s also worth remembering that you could already be sitting on thousands of pounds worth of unclaimed tax relief within your property. If your assets still belong to you, historic claims can be made.

For Companies which do not have a 31 March year end, the most important course of action is step five, which is to:

5. Speak to your advisors

Within this changing tax landscape, the best way to unlock and identify the true value of your capital allowances claim and plan ahead is to speak to an advisor.

Capital allowances continue to be a complicated area of tax, and in many cases requiring both tax and surveying skills and chartered surveying. Speaking to specialist will help you to plan ahead of the end of the super deduction, mitigate any impact it may have on your cash flow and help you to maximise the value of your claim going forward.

If your company’s chargeable period ends on or after 1 April 2023, the super deduction of 130% is replaced by a ‘relevant percentage’. This relevant percentage is calculated using the total number of days before 1 April 2023 and pro-rates the super-deduction percentage.

This pro-rated percentage accounts for the increased rate of Corporate Tax ensuring that the benefit of the super-deduction stays the same. For example, if a company has a 30 June year end, it’s ‘relevant percentage’ would be 122.5%.  Similarly, if a company has a 31 December year-end it’s ‘relevant percentage’ would reduce to 107.5%!

Supporting you with capital allowances

Our team of experts are here to support you ahead of the end of the super deduction. Whether it’s answering your capital allowances questions and queries or assessing what your claim will look like going forward, please feel free to get in touch.