Five Reasons Why 2021 is a Great Time to Claim Capital Allowances
1. The Super Deduction
The March 2021 budget announced the super deduction which offers companies accelerated and enhanced tax relief for qualifying plant & machinery spend across a 2-year period.
Main pool plant & machinery expenditure incurred between 1 April 2021 and the 31 March 2023 may be eligible for the 130% enhanced first year allowances instead of a writing down allowances of 18% annually.
Similarly special rate plant & machinery expenditure is likely to be eligible for an accelerated 50% first year allowance, with the remainder attracting the usual 6% annual writing down allowances.
Entitlement considerations and some exclusions apply. Read about the Super Deduction in more detail here https://yes.tax/news/capital-allowances-super-deduction
2. Extended Loss Carry Back
The March 2021 budget also announced a temporary extension to the loss carry back rules.
For accounting periods ending between 1 April 2020 and the 31 March 2022, losses may be carried back up to three financial years, instead of the usual one year rule. The losses must be offset in the most recent years first.
This can allow loss making companies to utilise capital allowances (and tax relief arising from other incentives such as R&D relief) by offsetting them against prior profitable periods, thus triggering a tax repayment.
3. Annual Investment Allowance
The Annual Investment Allowance (“AIA”) offers a 100% first year allowances on qualifying plant & machinery spend of up to £1,000,000 per year. Usually limited to £200,000, the temporary increase to £1,000,000 was extended to 31 December 2021 as part of the last budget.
This will allow accelerated tax relief from capital allowances in cases where the super deduction might not apply, or in combination with the super deduction to further accelerate allowances from special rate expenditure. Be sure to make the most of this relief before the AIA limit reduces in 2022.
4. Increasing Corporation Tax Rate
The budget also announced an increase in the corporation tax rate from 19% to 25% in April 2023.
Capital allowances offer flexible tax relief. A company may choose to pool their expenditure into the relevant pools, and not claim the writing down allowances that arise from that pool until its advantageous to do so. In this way a company could delay claiming relief until the corporation tax rate has risen, especially if the current periods are loss making.
This approach may be particularly viable where the super deduction and other enhanced reliefs are not available.
5. Historical Claims
Understandably there is less incentive to claim allowances when a company is loss-making, and the challenging circumstances of recent years means that there may be unclaimed allowances from historical expenditure in many property portfolios.
While some enhanced reliefs have an effective 2-year time limit, writing down allowances will always be available on qualifying expenditure, no matter when it was incurred, so long as the business still uses the asset in the trade or property business.
Allowances unlocked from historical property spend can be carried back or pooled for current and future use as mentioned above.
Get in Touch
Given the variety of reliefs and allowances on offer, it’s important to consider how best to optimise the use of your capital allowances. Don’t hesitate to get in touch for a free capital allowances consultation.
Cal Byers - Head of Capital Allowances: cal@yes.tax
Natalia Pope - Director: natalia@yes.tax
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