Capital allowances are claimed on assets as a form of tax relief. Full first-year allowance (FYA) is a type of allowance on certain assets that allows you to claim tax relief on the full cost of the asset in the year of purchase.
So how does it work?
When you purchase an asset that qualifies for FYA, the full cost of the asset will be deducted from your profit for the year, therefore reducing your profit before tax by the full amount of the asset purchased.
What assets qualify for First Year Allowances?
The purpose of the FYA is to encourage British companies to invest in eco-friendly products, meaning that the assets that qualify for FYA are usually low or zero-emission assets.
For example, some assets that are eligible are cars that meet low CO2 emission standards (less than 50g/km), energy-saving equipment and zero-emission delivery vehicles. This will only be applicable if the business has purchased the asset for their own business, not for use by others.
If you do not claim all of the first-year allowances that you’re entitled to, you can claim part of the cost in your next financial year using writing down allowances.
A 130% super deduction allowance of qualifying plant and machinery has been introduced to encourage companies to invest in productivity-enhancing plant and machinery assets, whilst also being a form of relief from Covid-19. This means that for every £1 spent on a qualifying asset, the investing business will have their taxes cut by up to 25p.
As this allowance was introduced as a Covid-19 recovery measure, the current period given for this to run is 1st April 2021 to 31st March 2023, so a 2 year period in which the allowance will be given.
If you’d like help or advice in claiming back your First-Year Allowance, please get in contact and one of our team will be in touch.