A strong incentive to make additional investments sooner rather than later

A strong incentive to make additional investments sooner rather than later

Since the Covid-19 pandemic, existing low levels of business investment have fallen. Comprising of historically low levels of business investment and a slowdown of productivity growth, making capital allowances more generous encourages stimulation of business investment, promoting economic growth.

With the super-deduction allowance ceasing after 31 March 2023, Martin Gurney explains how forward planning is key in ensuring the super-deduction will give companies a strong incentive to make additional investments and bring planned investments forward.

Important - this allowance only applies to entities that are subject to corporation tax.

The capital allowances super-deduction was introduced for expenditure between 1 April 2021 and 31 March 2023. In outline, the allowance provides a deduction against profits of 130% of the cost of the purchase of assets, predominantly:

• brand new (i.e. not second-hand)
• assets that qualify as ‘plant and machinery’ for tax purposes

Most other assets typically receive a 50% special-rate allowance in the year of purchase, although some assets do not qualify for the super-deduction/special-rate deduction.

There is no cap to the value of assets that may be claimed under the super-deduction

This allowance runs alongside the Annual Investment Allowance which provides a deduction against profits of 100% of the cost of the purchase of qualifying assets, but this allowance is currently capped at £1m per annum up to 31 March 2023 and £200k per annum thereafter.

This means that careful planning is required to maximise the allowances available:

There is still a window of opportunity to take advantage of the super-deduction, therefore careful, advance planning is needed to:

• plan the timing of expenditure – as a general rule of thumb, incurring qualify expenditure before the last day of the account period will typically accelerate allowances as compared to delaying until early in the new accounting period
• identify the nature of the cost so that it can be allocated to the correct allowance category
• obtain details of the cost of various elements of a project (particularly involving buildings) in order to be able to separate out and quantify specific items that qualify for more favourable allowances

The super-deduction allowance ceases to apply for expenditure after 31 March 2023, so now is a good time to plan for your capital spend.

How can Haines Watts help?

We advise clients with a broad range of tax related matters throughout the South West region.

If you would like to have a conversation to understand the complexities of the above, please get in touch with your usual Haines Watts contact.