Invest and save tax

The Annual Investment Allowance (AIA) is a generous tax relief that allows for the total amount of qualifying expenditure on plant and machinery to be deducted from your profits before tax.

The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for AIA. The AIA is currently available for qualifying expenditure of up to £1 million per year.

If you are thinking of incurring expenditure on large items of capital expenditure for your business before the end of the tax year, there is still time to invest in new equipment and reduce your tax bills for 2023-24. This could mean looking at accelerating plans, where possible, to incur expenditure before the end of the year and maximise relief.

The AIA is available for most assets purchased by a business, for example, machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.

A claim for AIA must be made in the period the item was bought. This date is defined as the date when a contract was signed – if payment is due within 4 months of the contract being signed – or the actual payment date if it’s due more than 4 months later.

Source:HM Revenue & Customs | 18-03-2024

Full expensing

The full expensing 100% first-year capital allowance for qualifying plant and machinery assets came into effect on 1 April 2023. To qualify for full expensing, expenditure must be incurred on the provision of “main rate” plant or machinery. It should be noted that full expensing is only available to companies subject to Corporation Tax. 

Plant and machinery that may qualify for full expensing includes (but is not limited to):

  • machines such as computers, printers, lathes and planers;
  • office equipment such as desks and chairs;
  • vehicles such as vans, lorries and tractors (but not cars);
  • warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers;
  • tools such as ladders and drills;
  • construction equipment such as excavators, compactors, and bulldozers; and
  • fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.

Full expensing currently applies from 1 April 2023 until 31 March 2026 although this may be extended. The super-deduction that was introduced during the pandemic ended on 31 March 2023. Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p.

For “special rate” expenditure, which does not qualify for full expensing, a 50% first-year allowance (FYA) can be claimed. The 50% FYA was introduced alongside the withdrawn super-deduction and was due to end on 31 March 2023, but this 50% FYA has now been extended until 31 March 2026.

Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m per year. This includes unincorporated businesses and most partnerships.

Source:HM Treasury | 13-11-2023

Repairs or replacement of business assets

The term 'capital allowances' is used to describe the allowances available to businesses to secure tax relief for certain capital expenditure. The rules that govern the purchase of capital equipment such as computer equipment, vehicles and machinery by businesses are different to those for day to day business expenses that can be deducted from business income when calculating your taxable profits.

However, the fact that capital allowances have been given on the asset as a whole does not prevent a revenue deduction being made for a repair to that asset.

There are special rules for assets that are ‘integral features’. 

Integral features are:

  • electrical systems, including lighting systems
  • hot and cold water systems (but not toilet and kitchen facilities)
  • space and water heating systems
  • air-conditioning and air cooling systems
  • lifts, escalators and moving walkways
  • external solar shading

In general, where the expenditure on an integral feature represents 50% or more of the cost of replacing the integral feature, then the whole of the expenditure is to be treated as capital expenditure on the replacement of an integral feature for capital allowances purposes. 

Source:HM Revenue & Customs| 18-09-2023

Current capital allowances for car purchases

If you are thinking about purchasing a company car through a limited company, there are many issues that need to be considered. In this short article we will point out some of the main issues, but it is important to research this area and weigh up all the available options. The tax treatment of the purchase will depend on how the purchase of the company car is financed.

The purchase of a company car will be classed as a fixed asset and tax relief will be obtained by way of capital allowances. Cars do not qualify for the annual investment allowance.

The amount of capital allowances that can be claimed will fall within one of the following 3 categories:

  • 100% First Year Allowance. New and unused electric or zero emission cars emission cars benefit from 100% capital allowances. This means that 100% of the cost of the car can be deducted in the first year.
  • 18% of the car’s value (main rate allowances). This effectively means that 18% of the purchase price can be deducted from your profits each year before you pay tax.
  • 6% of the car’s value (special rate allowances). This effectively means that 6% of the purchase price can be deducted from your profits each year before you pay tax.

The difference between the main rate and special rate allowances depends on when the car was bought and its CO2 emissions. The government continues to encourage employers to choose more fuel-efficient vehicles by offering a tax incentive.

Source:HM Revenue & Customs| 28-08-2023
UK tax changes in 2023 spring finance bill; london accountant

Unpacking 2023 Spring Finance tax changes


The 2023 Spring Finance Bill consolidates changes proposed in the 2023 Spring Budget as well as additional changes to tax duty rates and tax relief allowances.You can
click here for our breakdown of the relevant changes to income tax, corporation tax, and tax-free allowances.

In this post, we will outline the changes to capital allowances and tax relief schemes for businesses. We will also cover changes to pension allowances, alcohol duty, and air travel taxes which were also included in the Spring Finance Bill.

Permanent increase to £1 million for the Annual Investment Allowance

Capital allowances allow businesses to deduct a portion of the value of assets they purchase from their taxable profits each year. You can claim capital allowances on items that you keep to use in your business – these are known as ‘plant and machinery’.

The primary types of capital allowance are ‘writing down allowances’. Under this scheme, most assets qualify for the ‘main rate’, allowing you to deduct 18% of their value from taxable profits each year, with a 6% ‘special rate’ for assets like integral features of buildings.

The Annual Investment Allowance is a 100% capital allowance available for the cost of most plant and machinery incurred by most businesses up to a specified annual amount. This means you can deduct the full value of purchased assets from your taxable profit in the year of purchase. You can do this until the total value of assets purchased exceeds £1 million, after which you will have to use writing down allowances at the rates described above.

The AIA was temporarily raised from £200,000 to £1 million in 2019, and the 2023 Spring Finance Bill makes this permanent. The measure aims to provide a continued incentive to support business investment with a simple legislative change.

 

Full capital expensing and extension of 50% special rate

Capital allowances allow certain capital expenditure to be deducted when calculating a business’s taxable profits. As described above, writing down allowances are 18% per year for main rate expenditure and 6% per year for special rate items. For main rate assets, this means you can deduct 18% of the asset’s value from your taxable profits each tax year.

Special rate items include assets with an expected lifetime of over 25 years, integral building features, and cars in the higher bands of CO2 emissions. 

The 2023 Spring Finance Bill provides for 100% first-year allowances for main rate expenditure (known as full expensing) and the extension of 50% first-year allowances for special rate expenditure. This is subject to certain exclusions, most notably cars, and will last until 2026.

This change gives an increased incentive to invest in plant and machinery by providing higher rates of relief immediately in the year that assets were purchased, rather than over many years.

 

Expansion of R&D relief

There are currently two schemes aimed at providing tax relief for research and development (R&D) in science or technology. First is the ‘Small and medium-sized enterprise (SME) R&D tax relief’. For larger businesses, there is the R&D expenditure credit (RDEC) system.

The Spring Finance bill makes the following changes to these tax relief schemes:

  • Requiring claimants to submit a pre-notification of their claim, unless they are new claimants or have not claimed in the previous three accounting periods.
  • Expands the categories of qualifying expenditure to include data licences and cloud computing costs to better reflect developments in technology and the different ways that cutting edge R&D is now undertaken.
  • Require the provision of additional information to support claims.
  • Address several unintended consequences in the legislation.

Expansion of Seed Enterprise Investment Scheme

The UK Seed Enterprise Investment Scheme (SEIS) is a government-backed initiative designed to encourage investment in early-stage and startup companies. It offers tax incentives to individual investors who purchase shares in qualifying companies, including income tax relief, capital gains tax exemption, and loss relief.

The 2023 changes to the SEIS scheme raises limits on investment and expands which businesses are eligible.

To be eligible for the scheme, companies must have fewer than 25 employees, be less than two years old, and have assets worth less a certain amount. The Spring Finance Bill raises this from £200,000 to £350,000.

The Bill also increases the maximum amount that a company can raise through SEIS from £150,000 to £250,000. Investors can now also claim SEIS relief on investments up to £200,000 per tax year.

Pension lifetime allowance scrapped; allowances increased

The Spring Finance Bill will be abolishing the pension lifetime allowance and increasing pension-related tax-free allowances.

It also includes incentives to help get over 50’s back to work, including expanding the DWP’s “Mid-life MOT” Strategy. This helps people to access financial, health and career guidance ahead of retirement. There will also be a new kind of apprenticeship targeted at the over 50s who want to return to work, called Returnerships.

What is the lifetime pension allowance?

The UK’s pension lifetime allowance (LTA) is a limit on the total amount of pension benefits an individual can receive without incurring an additional tax charge. For the 2022/2023 tax year, the LTA was £1,073,100. If the value of an individual’s pension savings exceeds this limit, they may be subject to a tax charge of up to 25%.

The LTA was designed to limit the amount of tax relief that high earners can receive on their pension contributions and to ensure that the pension system is sustainable. However, it can also affect individuals with long careers or high salaries, as their pension savings may exceed the LTA even with relatively modest contributions over time.

Changes to pension allowances

The 2023 Spring Finance Bill removes the tax charge on pension savings that exceed the lifetime allowances for the 2023/24 tax year. Future legislation will aim to remove the concept of an LTA for pensions entirely.

The Bill raises the pension annual allowance from £40,000 to £60,000, allowing individuals to make more pension contributions each year without incurring tax charges.

The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023. This means that those earning over £260,000 (from 6 April 2023) will begin to see their £60,000 annual allowance tapered. For every £2 that your income exceeds £260,000, your annual allowance is reduced by £1.

The annual allowance cannot be reduced to be less than £10,000 (up from £4,000 in 2022/23).

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Changes to alcohol duty

 

HMRC’s Spring Budget also announced changes to the tax charged on alcoholic products. The policy document outlines how these changes will affect the average consumer:

  • 4% ABV pint of draught beer will be 0 pence higher.
  • 4% ABV 500ml bottle of non-draught beer will be 5 pence higher.
  • 5% ABV pint of draught cider will be 2 pence higher.
  • 5% ABV 500ml bottle of non-draught cider will be 5 pence higher.
  • 40% ABV 25ml serving of whisky will be 3 pence higher.
  • 5.4% ABV 250ml can of spirits-based RTD will be 6 pence lower.
  • 11% ABV 250ml glass of still wine will be 5 pence higher.

The document also states that individuals who drink stronger alcoholic products may pay more through the revised duty structure. Individuals who drink draught products in on-trade venues (such as pubs) will pay less tax than on the equivalent non-draught product in off-trade venues (such as supermarkets).

Air Passenger Duty changes

Air Passenger Duty is charged on commercial passenger flights. Previously, these charges had two bands based on distance travelled. Band A is for flights with a distance between 0 and 2000 miles, and Band B for those over 2000 miles.

The Spring Finance Bill introduced two new bands – one for domestic flights and one for long-haul flights of over 5500 miles. These changes will reduce the tax burden on domestic flights while increasing taxes on ultra-long-distance trips.

The full table of Air Passenger Duty rates is below. The reduced rate applies to the lowest class of travel available on the aircraft, and the standard rates to any other class. The higher rates apply to aircraft of 20 tonnes or more equipped to carry fewer than 19 passengers.

Bands

Reduced rate

Standard rate

Higher rate

Domestic (within UK)

£6.50

£13

£78

0 -2000 miles

£13

£26

£78

2001 – 5500 miles

£87

£191

£574

over 5500 miles

£91

£200

£601



bottom line

The 2023 Spring Finance Bill is broadly aimed at stimulating the UK economy by lowering limits and taxes on business investment, and encouraging individuals to work more (via increased annual pension allowances) and longer (via incentive schemes for over 50’s).

Most notably, the Bill makes permanent the previously temporary £1 million Annual Investment Allowance, and provides ‘full expensing’ for most capital purchases until 2026.

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Full expensing started 1 April 2023

The new 100% first-year capital allowance for qualifying plant and machinery assets known as full expensing came into effect on 1 April 2023. This measure expected to help boost business investment and growth.

The Financial Secretary to the Treasury, said:

“We are determined to make the UK the best place in the world to do business, which is why businesses can start to benefit from the raft of tax cuts on offer to boost their growth. With full expensing, the more a company invests the less tax they’ll pay, and I encourage companies of any size to take full advantage of this world-leading reform.”

To qualify for full expensing, expenditure must be incurred on the provision of “main rate” plant or machinery. It should be noted that full expensing is only available to companies subject to Corporation Tax. 

Plant and machinery that may qualify for full expensing includes (but is not limited to):

  • machines such as computers, printers, lathes and planers;
  • office equipment such as desks and chairs;
  • vehicles such as vans, lorries and tractors (but not cars);
  • warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers;
  • tools such as ladders and drills;
  • construction equipment such as excavators, compactors, and bulldozers; and
  • some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.

The new measure will initially apply from 1 April 2023 until 31 March 2026 although this may be extended. The super-deduction that was introduced during the pandemic ended on 31 March 2023. Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p.

For “special rate” expenditure, which doesn’t qualify for full expensing, a 50% first-year allowance (FYA) can be claimed instead. The 50% FYA was introduced alongside the super-deduction and was also due to end on 31 March 2023. It will now be extended by three years to 31 March 2026.

Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m per year. This includes unincorporated businesses and most partnerships.

Source:HM Treasury| 02-04-2023
Calculating taxable income for limited companies

Calculating taxable income for companies

As a UK company, you are required to pay corporation tax on your taxable profits. These are your total profits, minus business expenses that can be claimed as tax relief.

However, it is important to note that not all expenses incurred by your business can be taken off of your taxable profit. In this blog post, we will be discussing which expenses can and cannot be claimed as tax relief, and other kinds of tax relief available to UK companies.

Expenses that can be claimed

The following expenses can be claimed as tax relief, provided they are incurred wholly and exclusively for the purposes of your business:

  • Cost of goods sold: This includes the direct cost of any products or services sold by your business.
  • Wages and salaries: This includes payments made to employees, including bonuses and benefits.
  • Rent and rates: This includes the cost of renting business premises and business rates paid to the local council.

  • Capital expenditure: This includes the cost of purchasing fixed assets, such as property, cars, and machinery. These costs are claimed through capital allowances, and tax relief may have to be claimed over several years depending on the asset.
  • Travel expenses: This includes the cost of business travel, including train fares, mileage allowances, and subsistence expenses.
  • Repairs and maintenance: This includes the cost of repairing and maintaining business assets.
  • Marketing and advertising: This includes the cost of advertising your business and any marketing materials produced.
Which expenses can UK companies claim tax relief on?

Expenses that cannot be claimed

The following expenses cannot be claimed as tax relief:

  • Personal expenses: This includes any expenses not incurred wholly and exclusively for the purposes of your business.

  • Fines and penalties: This includes any fines or penalties imposed on your business.

Other kinds of tax relief available in the UK

Aside from claiming expenses, there are other forms of tax relief available to UK companies:

 

  • Research and Development (R&D) tax relief: This relief is available to companies that are carrying out research and development activities. The relief can be claimed as an additional deduction from taxable profits or as a cash payment.
  • Patent Box: This is a scheme that allows companies to apply a lower rate of corporation tax to profits earned from patented inventions.
  • Enterprise Investment Scheme (EIS): This is a scheme that provides tax relief for investors who invest in qualifying small and medium-sized companies.

When is corporation tax due?

The deadline for UK corporation tax returns and payments depends on the company’s accounting period. This is the period that their tax return will cover.

Generally, companies must file their tax returns within 12 months of the end of their accounting period. For example, if a company’s accounting period ends on 31 December 2021, its corporation tax return and any tax due must be filed and paid by 31 December 2022.

However, the deadline for actually paying your corporation tax bill is considerably earlier. Corporation tax payments are due nine months and one day from the end of your accounting period.

Need Assistance from an Accountant?

In conclusion, it is important to note that not all expenses incurred by your business can be claimed as tax relief. However, by understanding what expenses can be claimed, and by taking advantage of other forms of tax relief available, you can reduce your company’s corporation tax liability.

If you are unsure about what expenses can be claimed or what other forms of tax relief are available, it is recommended that you seek professional advice from a qualified accountant.

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Reach out to us by completing this form and one of our staff members will get in touch within one business day. 


Spring Budget 2023 – Capital allowances

Designed in part to help offset the increased Corporation Tax main rate, the Chancellor announced the introduction of a new ground-breaking 100% first-year capital allowance for qualifying plant and machinery assets. This measure is also expected to help boost business investment and growth.

The new measure, known as full expensing, will initially apply from 1 April 2023 until 31 March 2026 although the Chancellor suggested that it may be made permanent in due course. The measure builds on the success of the super-deduction which ends on 31 March 2023. Under full expensing, for every pound a company invests, their taxes will be cut by up to 25p.

To qualify for full expensing, expenditure must be incurred on the provision of “main rate” plant or machinery. It should be noted that full expensing is available to companies subject to Corporation Tax only. 

Plant and machinery that may qualify for full expensing includes (but is not limited to):

  • machines such as computers, printers, lathes and planers
  • office equipment such as desks and chairs
  • vehicles such as vans, lorries and tractors (but not cars)
  • warehousing equipment such as forklift trucks, pallet trucks, shelving and stackers
  • tools such as ladders and drills
  • construction equipment such as excavators, compactors, and bulldozers
  • some fixtures such as kitchen and bathroom fittings and fire alarm systems in non-residential property.

For “special rate” expenditure, that doesn’t qualify for full expensing, a 50% first-year allowance (FYA) can be claimed instead. The 50% FYA was introduced alongside the super-deduction and was due to end on 31 March 2023. It will now be extended by three years to 31 March 2026.

Businesses can also continue to use the Annual Investment Allowance (AIA) to claim a 100% tax deduction on qualifying expenditure on plant and machinery of up to £1m per year. This includes unincorporated businesses and most partnerships.

Source:HM Treasury| 15-03-2023
what expenses can I claim back if I'm self employed; london accountant

What expenses can I claim back when self-employed?

When you are self-employed, as with other types of business, you will have various costs to keep your business running. Many of these expenses qualify for tax relief, which means you can deduct the value of these expenses from your profits before working out how much tax you owe.

what qualifies for tax relief?

You can claim tax relief on small and regular costs as ‘allowable expenses’. These are things like fuel for business use, staff costs, and advertising. More expensive items which you are likely to use for more than 2 years can be claimed as ‘capital allowances’.

 

If you rent property, we have a guide for rental expenses that qualify for tax relief.

 

You will have to report these expenses on your Self Assessment tax return. You can follow this link to read our tips on common mistakes to avoid.

Allowable expenses

You can deduct the full amount of these expenses from your profits before tax. If some of these expenses benefit you personally as well as your business, you will need to decide on a fair way to split the cost when submitting your records to HMRC.

tax-deductible expenses for self-employment; london accountant

Stationery and goods

You can claim expenses for things like:

  • Phone and internet bills.
  • Printing.
  • Computer software your business uses for less than two years or which you make subscription payments for (otherwise claim capital allowances).
  • Postage.

You can claim the cost of uniforms, protective clothing, and costumes for entertainers. You cannot claim for everyday clothing you wear to work.

You can claim for the costs of your stock (goods bought for resale), costs of raw materials, and the costs incurred directly for producing goods.

Rents, power and insurance

You can claim expenses for:

  • Rent for business premises.
  • Utility bills.
  • Property insurance.
  • Security.
  • Repairs and maintenance for business premises or equipment.
  • Using your home as an office

 

If you use your home as an office, you will have to divide your costs either by the amount of the home used for business, or hours worked in the home.

Car and travel expenses

The following are allowable expenses:

  • Vehicle insurance.
  • Repairs.
  • Fuel for business use.
  • Parking.
  • Licence fees.
  • Train, bus, taxi and air travel fares.
  • Hotel rooms.
  • Meals on overnight business trips.

You cannot claim fines or costs for traveling between work and home.

If you buy a vehicle for your business, you can claim this as capital allowance, usually in the form of writing down allowance. 

Staff expenses

Most costs relating to staff count as allowable expenses, such as:

  • Employee salaries.
  • Bonuses.
  • Pensions.
  • Agency fees.
  • Employer’s National Insurance.
  • Business-related training courses.

 

You cannot claim for the costs of nannies and domestic help.

Legal costs and financial charges

You can claim costs for legal, professional and bank costs such as:

  • Hiring accountants.
  • Hiring professionals who provide services, like architects or surveyors.
  • Overdraft and credit card charges.
  • Interest on bank loans.
  • Hire purchase interest.
  • Insurance policies.

 

Any legal costs involved in buying property or machinery should be claimed using capital allowances, which we explain further on.

Marketing and entertainment

You can claim for:

  • Advertising – such as in newspapers, mail advertising, free samples, website costs
  • Subscriptions to trade or professional journals
  • Professional organisation or trade body membership fees related to your business.

 

However, you cannot claim the following:

  • Entertaining clients or suppliers.
  • Gym membership fees.
  • Payments to political parties.

Capital allowances

Capital allowances are another kind of tax relief for businesses. This allows you to deduct a portion, or all, of an item’s value from your profits before working out how much tax you owe. Unlike allowable expenses, capital allowances are usually for items with a lifespan longer than two years.

 

This includes things like office furniture, computers and printers, tools, and equipment.

 

Most long-term items, except cars, bought by you for use in your business will qualify for Annual Investment Allowance. This allows you to deduct the full value of an item from your profits before tax for the tax year that the item was bought.

Is there a limit to this tax relief?

You can claim expenses according to the AIA until your total deductions for these long-term items reach the ‘AIA amount’, after which you will have to use ‘writing down allowances’ which are at only 18% or 6% of an item’s value.

The AIA amount has been set at £1 million.

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We’d be more than happy to help you with your accounting needs in London, or anywhere else in the UK!

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Business Closing on 31 December Tips

3 Tips for Companies with Year-End on 31 December

With the festive season approaching, many companies are closing for the holidays. But for some companies 31 December marks their annual year-end date. So in preparation, we want to give companies with a year-end date a few tips! 

Tip 1 : Super-deduction Capital Allowance

The super-deduction and special rate first year allowance (SR allowance) temporarily increase reliefs for companies on qualifying expenditure on plant or machinery from 1 April 2021 to 31 March 2023. You can qualify for super-deduction capital allowance if:

HMRC has launched an interactive tool for you to check whether you can qualify for the super deduction capital allowance. This would allow you to write off 130% of cost against your profits for 2022 if the purchase was completed before 31 December 2022.

Tip 2: Investigate Optimal Year-End dates

If you are expecting profits to reduce in the first quarter of 2023, perhaps making a loss in this period, would it reduce your corporation tax bill if you extended your accounting date to 31 March 2023, and use the first quarter losses earlier? This is something important to consider for all companies to manage their finances optimally. 

Tip 3: Get Ready For 2023

Being a business owner comes with a lot of responsibility. This includes taking a holistic look at the year that has passed. A good way to look at your financials include

These questions will help you tailor a better budget and plan for the business moving forward. Identifying areas for growth as well as areas that are performing optimally can help you make more informed decisions in 2023. 

2023 is likely to be a challenging year with a projected recession, continuing high inflation and upward pressure on interest rates.

If you are unsure which strategies to put in place to manage your financials effectively, feel free to contact us:


Super-deductions finish March 2023

Time is running out to claim the super-deduction offering 130% first-year tax relief. The deduction is available to companies until March 2023. The super-deduction was designed to help incorporated businesses finance expansion after the coronavirus pandemic and to help drive growth.

The super-deduction tax break was introduced on 1 April 2021 and allows businesses to deduct 130% of the cost of any qualifying investment on most new plant and equipment investments that would ordinarily qualify for 18% main rate writing down allowances. This means that for every £1 businesses invest, they can reduce their tax bill by up to 25p. The temporary tax relief applies on qualifying capital asset investments until 31 March 2023. 

In addition, an enhanced first year allowance of 50% on qualifying special rate assets also applies expenditure within the same period. This includes most new plant and machinery investments that would ordinarily qualify for 6% special rate writing down allowances. 

The super-deduction can only be claimed by companies. This means that self-employed traders are unable to benefit. However, they could benefit from the Annual Investment Allowance (AIA) for investments of up to £1 million. The AIA allows for a 100% tax deduction on qualifying expenditure on plant and machinery. The temporary limit of £1 million will also remain in place until 31 March 2023 before reverting to the usual £200,000 limit.

Source:HM Treasury| 05-12-2022
What qualifies for First Year Allowances

What qualifies for First Year Allowances

Businesses can claim a 100% first-year allowance (FYA) on the purchase of certain qualifying Plant and Machinery (P&M). The cash-flow benefit of accelerated tax relief is designed to encourage businesses to invest in capital items which help reduce their carbon footprint by being energy and water efficient. The list of qualifying items includes expenditure on new unused electric vehicles and other cars with zero CO2 emissions.

The list also includes:

  • plant and machinery for gas refuelling stations, for example storage tanks, pumps;
  • gas, biogas and hydrogen refuelling equipment;
  • zero-emission goods vehicles;
  • equipment for electric vehicle charging points;
  • plant and machinery for use in a freeport tax site, only for companies.

The use of the FYA allows businesses to set the full cost of qualifying P&M against their tax bills in the year of purchase. The FYA is only available on the purchase of new cars with zero emissions. Second-hand cars do not qualify for FYAs (but can be eligible for writing down allowances). If claiming the full amount of FYA would create a loss, it is also possible to claim less than the full 100% FYA and claim the balance using writing down allowances.

Source:HM Revenue & Customs| 31-10-2022
Capital Allowance Pools

Capital Allowance Pools

A Writing Down Allowance (WDA) is available for plant and machinery expenditure that exceeds the Annual investment allowance (AIA) and / or does not qualify for a First-Year Allowance as well as for residual balances of expenditure that has been carried forward from the previous accounting period. The WDA is based on the cost of the items in the year they are acquired.

There are two rates of WDA for plant and machinery. To calculate them, you first group your expenditure into separate capital allowance pools:

  • the main pool – this includes expenditure on most items – the rate is 18%
  • the special rate pool includes special rate expenditure including long-life assets, integral features, certain thermal insulation and some cars – the rate is 6%.

Integral features are:

  • lifts, escalators and moving walkways
  • space and water heating systems
  • air-conditioning and air cooling systems
  • hot and cold water systems (but not toilet and kitchen facilities)
  • electrical systems, including lighting systems
  • external solar shading

It is important to note that the capital allowances regime for integral features only applies to the above list and that buildings themselves don’t qualify for capital allowances. However, before you make a claim (or not) for integral features please speak to us as the rules can be complicated and there are many grey areas.

Source:HM Revenue & Customs| 24-09-2022