Businesses are running out of time to take advantage of the Corporation Tax super-deduction capital allowance scheme, which allows companies to claim back 130% on investments made in plant or machinery.
The scheme runs until 31 March 2023. With Corporation Tax rates set to rise in April 2023 for more profitable businesses, there’s not much time left to take advantage of this generous scheme.
The scheme was an incentive to invest in new assets to aid the recovery of companies after the pandemic.
The measure allows organisations to claim a super-deduction providing an allowance of 130% on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances.
They can also use the first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for special rate writing-down allowances.
What classes as plant and machinery?
There are many forms of ‘tangible’ assets used in the day-to-day running of a business. Some examples include:
- Ladders, drills, cranes
- Office furniture
- Refrigeration units
- Electric Vehicle charge points
- Compressors
Certain expenditure is excluded, for example, the acquisition of company cars. To benefit from the relief, the assets must be new purchases, not second-hand or refurbished equipment.
How does the super-deduction capital allowance scheme work?
A company incurring £1 million of qualifying investments decides to claim the super-deduction.
Spending £1 million will mean the company can deduct £1.3 million (130% of the initial investment) in working out its taxable profits.
Deducting £1.3 million from its taxable profits will save the company up to 19% of that – or £247,000 on its Corporation Tax bill.
What about unincorporated businesses?
The relief is only available to limited companies. Unincorporated businesses can continue to benefit from the Annual Investment Allowance (AIA), which permits a deduction of 100% for qualifying plant or machinery expenditure up to the threshold of £1 million.
Our tax experts are always on hand to give tax-planning advice, so set up a consultation with us today.
