Capital Allowances

Super Deductions

Temporary first year allowances introduced in the March 2021 Budget and are now available on eligible expenditure incurred between 1 April 2021 and 31 March 2023. The 2022 Autumn Statement confirmed they will cease for expenditure only up to 31 March 2023.

The allowances are:

• 130% on ‘new’ plant & machinery fixed assets which would usually qualify for 18% writing down allowances.
• 50% as opposed to 6% on expenditure incurred on special rate pool items such as integral features.

Super deductions are:

• Following an amendment to the 2021 Finance Act are now available to property lessors in respect of eligible assets in leased buildings.
• Available to companies subject to corporation tax and not individuals, partnerships or LLPs.
• Not available on expenditure eligible for qualifying expenditure Structures and Buildings Allowance.
• Are available on expenditure where the contract for eligible expenditure was entered into after 3 March 2021.
• Annual Investment Allowance and annum writing down allowances are applicable for assets falling out side qualifying for Super deduction.

It is essential that all expenditure incurred prior to 31 March 2023 is assess to identify Super deduction qualifying assets prior to the cessation of the temporary first year allowance.

A welcomed development of historic first year allowances and confirmed as a permanent provision in the Mini-budget 2022, with an Annual Investment Allowance (AIA) value of £1 million per annum.

Available to businesses and sole traders with restrictions on mixed partnerships and single control entities. The £1 million per annum allowance enables.

While super deductions are available it is recommended to utilise those first year allowances in the first instance and review remaining qualifying expenditure within AIA allowance. The balance will be subject to writing down allowances.

Where required AIA may be fully utilised to the lesser of £1 million or qualifying expenditure in the year, or part AIA and part utilisation of writing down allowances or just writing down allowances.

Additional rules around AIA include:

• AIA can only be claimed against qualifying plant and machinery (excluding business cars) and must be claimed on the period on which the expenditure is incurred.  
• It is essential that expenditure is analysed and claimed within the correct asset categories and pools. Qualifying main pool special rate pool capital expenditure may apply for AIA, however Structures and Buildings Allowance will not.
• AIA £1 million relates to each accounting period of 12 months and for prolonged expenditure AIA may be applicable in each accounting period.
• New companies incurring qualifying expenditure, and companies adjusting accounting periods, the AIA will be time apportioned.
• Unfortunately AIA cannot be claimed in the period in which a business ceasing trading.

For capital expenditure incurred in a business on assets that qualify for capital allowances, the asset must be owned by the company or individual and used within their business or trade. Qualifying assets will fall into two capital allowance pools depending on the asset type: ‘Main Pool Plant & Machinery’ or ‘Special Rate Pool Integral Features’. Assets installed within dwellings are excluded.

Capital allowances are not automatically applied and must be analysed and assets clearly identified and categorise by asset group and applicable pool and claimed within a tax return.  As long as an asset is owned and utilised in the trade are no time limits to claim and pool, allowing historic claims.

• Chattels and loose assets – generally loose assets and will include furniture, desks, chairs, computers, etc – may qualify for Main Pool Plant & Machinery and will be written down at 18% per annum against taxable profits.
• Fixtures or assets appended to property – assets acquired as part of property transactions or new construction or refurbishment, where used in the trade may fall into two Pool categories, Main Pool Plant & Machinery or Special Rate Pool Integral Features (assets of a long life nature).
• Main Pool Plant & Machinery Assets – fixed or appended to land or property and will include assets such as kitchens, loose carpets, fire and intruder detection and alarm systems, mechanical door furniture, signage. Identified and qualifying Main Pool Plant & Machinery will be written down at 18% per annum against taxable profits. 
• Utilisation of First Year Allowances or Annual Investment Allowance will require identification and categorisation by asset group and applicable pool. 
• Fixtures on sale or disposal – Consideration must be made on disposal of chattels you are required to recognise a disposal value on sale of the asset. For sale of property interest including fixtures within property you are also required to recognise a disposal value on sale. The sale of fixtures you are able to agree an elected value with a purchaser at a value. The election value can be a figure ranging between original cost down to tax written down value or to £1 per pool. Advice on proposed disposal of property and fixtures is essential prior to marketing the property for sale.
• For expenditure incurred on qualifying Main Pool Plant & Machinery assets before April 2019 incur a 20% writing down allowance – 18% after April 2019.
• Finance leases and hire purchase for plant and machinery and vehicles have a different set of capital allowance rules.

Land Remediation Relief (LRR) is only available on certain costs on the remediation of contaminated land including asbestos and Japanese knotweed removal. 

LRR is not available to companies who were the original contaminator of the land or building.

Irrespective of whether the cost is capitalised or expensed, relief of 150% of the original eligible costs incurred can be claimed. Analysis of qualifying activity and associated costs is required to complete a required election.

LRR is only available to companies subject to corporation tax.

For capital expenditure incurred in a business on assets that qualify for capital allowances.  The asset must be owned by the company or individual and used within their business or trade. Qualifying assets will fall into two capital allowance pools depending on the asset type: ‘Main Pool Plant & Machinery’ or ‘Special Rate Pool Integral Features’ (assets of a long life nature). Assets installed within dwellings are excluded.

Capital allowances are not automatically applied and must be analysed and assets clearly identified and categorise by asset group and applicable pool and claimed within a tax return.  As long as an asset is owned and utilised in the trade are no time limits to claim and pool, allowing historic claims.

Special Rate Pool Integral Feature Assets (Introduced from April 2008) – fixed or appended to land or property and will include assets such as heating and air conditioning systems, electrical and lighting installations, hot and cold water systems, lifts and escalators. Identified and qualifying Special rate Pool Integral Features will be written down at 6% per annum against taxable profits. 

Utilisation of First Year Allowances or Annual Investment Allowance will require identification and categorisation by asset group and applicable pool. 

Fixtures on sale or disposal – consideration must be made on disposal of chattels you are required to recognise a disposal value on sale of the asset. For sale of property interest including fixtures within property you are also required to recognise a disposal value on sale.  The sale of fixtures you are able to agree an elected value with a purchaser at a value. The election value can be a figure ranging between original cost down to tax written down value or to £1 per pool. Advice on proposed disposal of property and fixtures is essential prior to marketing the property for sale.

Special rules cover the expenditure incurred on thermal insulation installed into an existing non-dwelling property with special rate pool writing down allowances available. However, on disposal of the property the disposal required to be brought into account is nil.

For expenditure incurred on qualifying Special Rate Pool Integral feature assets before April 2019 incur an 8% writing down allowance – 6% after April 2019.

Construction and refurbishment of commercial property will comprise qualifying and non-qualifying assets together with expenditure on previous non-qualifying structure and buildings.  

Structures and Buildings Allowances (SBA) are available on the costs of constructing new, or renovating old, non-residential properties which do not otherwise qualify for capital allowances. As SBA cannot be claimed on expenditure eligible for other capital allowances, to make a valid SBA claim we would suggest that a detailed capital allowance review is undertaken to identify these other assets.

Eligible SBA expenditure must relate to contracts for the physical construction work entered into on or after 29 October 2018. The relief applies from when the buildings is first brought into use, and may be different dates for phased completion / dates of first use.  

The annual allowance is 2% before April 2020 and then 3% on a straight line basis. There is a requirement for the production SBA Statement for each SBA claim applicable to each date of first use.

If the property is sold there is no claw back of these allowances however any allowances claimed would be deducted from the base cost for capital gains purposes. Consideration of this implication must be considered if future proposed sale may occur in the near future.

ECA expenditure on energy efficient plant and is either listed on the Energy Technology List or the supplier or manufacturer self certifies. ECA are no longer available on expenditure after April 2020.