Capital allowances update including super deductions
Capital allowances vs AIA vs super-deduction on plant and machinery.
The annual investment allowance was increased from £200,000 to £1m for investment made from 1 January 2019. The Chancellor has temporarily extended this until 31 March 2023. The threshold will revert to £200,000 from 1 April 2023.
The UK has been known for promoting investment in businesses and there are lots of incentives provided on these investments. Businesses can claim capital allowances, which is being complemented with Annual Investment Allowance (AIA) to accelerate the amount of the relief where the investment is made in qualifying plant and machinery as per chapter 3A of CAA 2001. AIA allows the eligible businesses to claim 100% of the qualifying cost of plant and machinery in the year of purchase.
Furthermore, in March 2021, the Chancellor announced ‘super-deduction’ which means the qualifying plant and machinery which are not excluded under section 46 of CAA 2001 can claim this relief in the year of purchase. From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets can claim 130% first-year capital allowance. The super deduction is available only to companies at a rate of 130% for main rate assets, 50% for special rate assets and 100% for assets used partly for ring-fenced trades.
The current rates of allowances are as below:
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Type of allowance
|Main writing-down allowance (reducing balance)||18%||18%|
|Special rate writing-down allowance (reducing balance)||6%||6%|
|Annual investment allowance (AIA)||£1,000,000||£1000,000|
|Annual investment allowance rate||100%||100%|
|Enhanced super-deduction allowance – main rate pool||130%||130%|
|Enhanced super-deduction allowance – special rate pool||50%||50%|
|Enhanced super-deduction allowance – ring-fenced trades||100%||100%|
Definition of plant and machinery
The capital allowance legislation does not define ‘plant’ or ‘machinery’ but HMRC manual summarises it, highlighting the exclusions and refers to the assets listed in S23(2).
The table below highlights some of the key differences while making a claim of these allowances:
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|Sr No||Type||Capital allowance||AIA||Super-deduction|
|1||Can sole trader/ partnerships claim?||Yes||Yes||No|
|2||Is it compulsory to claim the allowances?||No||No||No|
|3||Do I lose the allowances if I choose not to claim?||No||No||No|
|4||Is second-hand plant and machinery eligible for relief?||Yes||Yes||No|
|5||Is the relief available on leased assets? *||Yes||Yes||No|
|6||Can a partial claim be made?||Yes||Yes||Yes|
ACCA wrote to the Chancellor in August, along with other related membership bodies, to request that the super-deduction allowance be extended to include leasing and short-term hire finance.
More details on enhanced super-deduction can be found here.
Further details on the extension of the annual investment allowance can be found here.