The Enhanced Capital Allowance Rules For Limited Companies

Chris Stedman
Senior Partner
September 27, 2021
    

The Finance Act 2021 introduced the capital allowance “super-deduction” and special rate first year allowance as a temporary measure. These provide relief for companies on qualifying expenditure on new plant or machinery from 1st April 2021 to 31st March 2023. They are valuable reliefs, but the date of expenditure is important for the asset to qualify.

There are two types of enhanced relief:

  • A super deduction of 130% allowances on new plant and machinery that is not special rate expenditure, i.e., it would normally qualify for the 18% main writing down allowance; and
  • A first-year allowance of 50% on new plant machinery that qualifies as special rate expenditure, i.e., it would ordinarily qualify for the 6% rate writing down allowance.

Note that assets purchased under a hire purchase contract entered into on or after 3rd March 2021 will be eligible for the enhanced allowances, provided they meet specific conditions. Also note that when assets are subsequently sold, a balancing charge will arise. It is therefore essential that separate records of qualifying assets need to be maintained for the purpose of quantifying the charge.

Example

Fastfleet Ltd expanded its operations during Covid and was very successful. During the year ended 31st March 2022 the company incurred the following expenditure:

30/09/2021 Two New Lorries £350,000
31/10/2021 Two Fork-lift Truck (Second Hand) £42,000
30/11/2021 Solar Panels for Warehouse Roof £380,000

The existing down values at 01/04/2021 were £375,000 (main pool) and £25,000 (special pool).

The company’s 2021/22 capital allowance computation will be as follows:

  FYA Main Pool Special Rate Allowances
WDV Bought Forward   375,000 25,000  
WDA           18% / 6%   (67,500) (1,500) 69,000
         
Annual Investment Allowance        
Forklift Trucks   42,000    
Solar Panels      380,000  
AIA - 100%   (42,000) (380,000) 422,000
         
Super-deduction        
Lorries 350,000      
FYA - 130% (455,000)     455,000
         
WD Value c/f £ -    £307,500 £23,500  
                        
Total Claim       £946,000

Note that the cost of the solar panels represents special rate expenditure, normally attracting a 6% WDA. Since the panels are new, they qualify for the temporary 50% FYA. However, because Fastfleet Ltd has sufficient AIA capacity, it is preferable to claim a 100% AIA on them instead.

Note too that the Forklift trucks, being second hand, do not qualify for the super-deduction. Instead, a 100% AIA claim is made.

Let C&H Stedman help you through the intricacies of enhanced capital allowances.

AIA – Annual Investment Allowance (extended to £1m to 31.12.2021)

FYA – First Year Allowance

WDA – Writing down Allowance

WDV – Written Down Value

 

Subscribe to Steddi Updates

Get industry insights that you won't delete, straight to your inbox.
We use contact information you provide to us to contact you about our relevant content, products, and services. You may unsubscribe from these communications at any time. For information, check out our Privacy Policy.

More news

Taxation

Inheritance Tax - Loan Waivers

It is not uncommon for moderately well-off parents to help their children with loans (particularly in connection with the acquisition of property) which later on in life they proceed to convert to gifts when their own circumstances are assured. What documentation is necessary? Do you really need to bother?

Read Article
Taxation

Tax Chat #2

Many clients sensibly set up a direct debit for payment of VAT which not only gives a few days extra to pay VAT but also ensures HMRC receive your payment on time, we at C&H Stedman always recommend this.

Read Article
Taxation

Tax Chat #1

There is currently a lot of activity and hype about the 130% super-deduction for companies that ends on 31 March 2023, you may be being encouraged to take advantage of it while it is there or thinking of bringing capital expenditure forward to take advantage of it.

Read Article