The 2021 Spring Budget introduced two types of enhanced allowances for companies incurring capital expenditure from 1 April 2021 to 31 March 2023. But for organisations with a year-end other than 31 March 2023, expenditure will need to be incurred earlier than that in order to get the full 130% deduction.

What are the two types of allowances?

  1. Super-Deduction
    The Super-Deduction is an enhanced 130% first-year allowance for new plant and machinery expenditure that would have qualified for main rate allowances at 18% such as furniture, machines and computers; and
  2. Special Rate Allowance
    The Special Rate Allowance is a 50% first-year allowance for expenditure that would have qualified for the special rate pool allowances at 6%, such as electrics, lighting, heating and solar panels.

What are the criteria for meeting the enhanced allowances?
The relief is conditional on meeting the following points:

  • Brand new, unused;
  • The asset cannot be onward leased;
  • Acquired after 1 April 2021 (and ordered after 3rd March 2021);
  • Acquired before 31 March 2023; and
  • Not a car

As we are entering into the final period during which a company can claim a super-deduction, one point to note is that the full super deduction rate of 130% is only available for accounting periods ending before 1 April 2023.

For accounting periods ending on 31 March 2023, the super-deduction will remain at 130% for qualifying expenditures incurred before the year-end.

However, for accounting periods ending after 1 April 2023 the rate of the first year allowance reduces depending on the number of days falling before and after 1 April 2023.

For example, a company with an accounting period ending 31 December 2023 will have an enhanced deduction of 7.4% being 90 days falling before 1 April 2023 divided by 365 in the accounting period multiplied by the enhancement of 30%. Therefore if the company acquires an item of machinery for £100,000 on 1 March 2023 the first year allowance available under the super deduction rules will be £107,400 being 107.4. Whereas if the same company acquires the same machine before the end of 31 December 2022 the company would be eligible to claim a first-year allowance of £130,000.

How we can be of assistance

This illustration demonstrates how important the timing of a company’s expenditure will be this year to enable the company to obtain the maximum relief with the super deduction.

Our expert team is on hand to help you with any questions you may have about the enhanced capital allowances. To discuss your own circumstances please get in touch with Angela Keery, Head of Tax E: or Tel: 028 9032 3466.

This article originally appeared on MHA Moore and Smalley.