Capital allowances are a tax relief available on the plant and machinery you purchase in your business.  They are deductible from your trading profits and reduce the amount of tax you pay. Important changes are discussed in this article…

At Crowthers Chartered Accountants we are experienced at assisting businesses to identify the expenditure that qualifies for tax relief and helping our clients to make the most of the allowances available to them.  We are always keen to look at year end planning with our clients, but this year it is more important than ever for to time the purchase of capital expenditure correctly.

Clients should be aware of the following up and coming changes to the capital allowance system:

Annual Investment Allowance (AIA)

Most plant and machinery qualifies, and tax relief can be claimed on the whole cost of the assets up to the AIA limit.  The current AIA limit is £1 million, however this is set to revert to its previous level of £200,000 as of 1 January 2022.  Unless your year end is 31 December, transitional rules will apply.

As an example, if you have a 31 March 2022 year end, the AIA limit would be calculated as follows:

PeriodCalculationAIA Entitlement
1 April 2021 – 31 December 2021(£1,000,000 x 9/12)£750,000
1 January 2022 – 31 March 2022(£200,000 x 3/12)£50,000
Total AIA entitlement £800,000

The businesses maximum AIA for this period is £800,000, however no more than £50,000 of the plant and machinery costs incurred between January and March will qualify.  The additional expenditure over this amount will qualify for capital allowances of just 18% of the cost of the asset.

Super Deduction

Although, all is not lost for companies after 1 January 2022, with the introduction of the new Super Deduction.

This new form of capital allowance entitles a company to 130% tax relief on qualifying capital expenditure between 1 April 2021 to 31 March 2023.  See our article “Could your company qualify for enhance tax relief on capital expenditure?” for more information on how the new relief works. See our latest article here…

Unfortunately, as sole traders and partnerships do not qualify for the enhanced relief, they will only be entitled to the reduced AIA limit of £200,000 from 1 January 2022.

Structures and Buildings Allowance (SBA)

From April 2020 SBA increased from 2% to 3%, meaning the allowance can now last up to 33 and one third years.  The structure must be used for a qualifying activity (mostly trades, professions and vocations) – for example farming.  You can claim on construction costs including; fees for design, preparing the site for construction, construction works, renovation repairs and conversion costs, and fitting out works.

At Crowthers we have a dedicated team with a large portfolio of clients.  With our useful tips and expert assistance, we can help you and your business to minimize the tax burden and increase profitability.