Capital allowances from 1st April 2021

As part of the Budget announced on 3rd March 2021, the Government introduced new temporary first-year allowances, including a 130% super-deduction, which will take effect from 1st April 2021 up to 31st March 2023.

HM Treasury has provided a factsheet covering the super-deduction here.

We have summarised the capital allowances applicable from 1st April 2021 as follows.

Super-deduction

The super-deduction is a new type of first-year allowance, providing relief of 130% on qualifying main rate plant and machinery. This is plant and machinery that would ordinarily qualify for the First-year allowances or the Main rate allowances (including the Annual Investment Allowance) with the following exceptions:

• Secondhand items.
• Cars.
• Transactions with connected parties; and
• Items purchased for leasing.

For example, a company purchasing a new £10k forklift truck would be able to deduct £13k from its taxable profits in the year of expenditure.

There is no limit on the expenditure that can be claimed for the super-deduction.

First-year allowances – Other

Existing first-year allowances remain available on qualifying energy and water-efficient equipment, providing relief of 100%. This is applicable particularly for

• Qualifying secondhand assets; and
• New cars with CO2 emissions of 50g/km or less (including electric).

For example, a company purchasing a new £30k electric car would be able to deduct £30k from its taxable profits in the year of expenditure.

There is no limit on the expenditure that can be claimed for first-year allowances.

Annual Investment Allowance (AIA)

The existing AIA remains available on qualifying main rate plant and machinery, providing relief of 100%. This is applicable for the items excluded from the super-deduction, except cars that do not qualify for AIA*.

For example, a company purchasing a secondhand £10k forklift truck would be able to deduct £10k from its taxable profits in the year of expenditure.

There is a limit of £1m on the expenditure that can be claimed for AIA. Any surplus to this can be claimed under Main rate allowances.

Main rate allowances

The existing main rate allowances remain available, providing relief of 18% (written down each year). This is applicable for

• Qualifying plant and machinery expenditure surplus to the AIA.
• New cars with CO2 emissions between 50g/km and 110g/km; and
• Secondhand cars with CO2 emissions less than 110g/km (including electric)

For example, a company purchasing a secondhand £10k electric car would be able to deduct £1,800 from its taxable profits in the year of expenditure, £1,476 in the second year etc.

Special rate assets – 50% first-year allowance

The 50% first-year allowance (FYA) for special rate is a new type of first-year allowance, providing relief of 50% on qualifying special rate plant and machinery. This essentially includes ‘integral features’ which would ordinarily qualify for the Special rate allowances with the following exceptions:

• Secondhand items.
• Cars.
• Transactions with connected parties; and
• Items purchased for leasing.

For example, a company purchasing a new £20k electrical system would be able to deduct £10k from its taxable profits in the year of expenditure.

Note, AIA can be claimed on these items and so the first-year allowance should only be claimed if the AIA limit has been reached.

There is no limit on the expenditure that can be claimed for the 50% FYA.

Special rate assets – Other

The existing special rate allowances remain available, providing relief of 6% (written down each year). This is applicable for

• Qualifying special rate plant and machinery expenditure surplus to the AIA; and
• New or secondhand cars with CO2 emissions above 110g/km

For example, a company purchasing a new £20k car with CO2 emissions of 120g/km would be able to deduct £1,200 from its taxable profits in the year of expenditure, £1,128 in the second year etc.

*Note, except cars, AIA can be claimed on these items and so special rate allowances should only be claimed if the AIA limit has been reached.