How will the capital allowances super deduction benefit my business?

March’s 2021 budget emphasised just how difficult the last 12 months have been for the UK economy and businesses alike.

With the economy shrinking by 10% and Government borrowing at a high not seen since the war, it was no surprise that the Chancellor’s budget was focused on Coronavirus and the road to recovery.

Among the grants and funding, there was also welcome news for businesses looking to make substantial capital investment over the next two years. It was announced that between April 2021 and the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments  that ordinarily qualify for 18% main rate writing down allowances. There will also be a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. [Source: Government Website]

What are capital allowances?

Capital allowances allow tax payers to write off the costs of tangible capital assets, such as plant or machinery, against their taxable income; taking the place of commercial depreciation, which is not an allowable tax deduction.

In the Government’s bid to stimulate business investment, the new super-deduction means that for every pound a company invests, their taxes are cut by up to 25p. Currently businesses spending £10m would achieve tax relief of £2.6m in the year of expenditure, however the new rules will now see them achieve tax relief on £13m of spend.

The Office for Budget Responsibility (OBR) says this super deduction will boost investment by £20bn a year.

When is the time to invest and benefit from capital allowances?

This is a significant increase in tax relief for businesses, with rates currently only at 100% for every £1m of spend.

Although this super-deduction only applies to incorporated businesses, unincorporated companies will still benefit from the £1m 100% annual investment allowance which remains until at least 31 December 2021.

If you are considering investment, then speak to our partners Capify- an established provider of finance to small and medium sized businesses in the UK. Capify offer quick and simple loans upwards of £5,000; for more, click here.

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