New Temporary Tax Reliefs on Capital Asset Investments

What are capital allowances?

Capital allowances allow businesses to write off the costs of tangible capital assets, such as plant or machinery, against their taxable income.

Whilst most businesses use depreciation to write down the value of an asset over its usable life, this is generally not allowed for tax purposes. Therefore, any depreciation must be added back, and any capital allowances applicable should be deducted instead.

Currently, first-year capital allowances allow you to deduct the full cost of the qualifying asset from your pre-tax profits, providing claims are made in the period the expenditure is incurred.

The increased temporary tax relief is an enhanced first-year allowance providing an increase on the usual allowance.

What does the Increased Relief mean?

There will be a temporary increase in tax relief for purchases of qualifying assets from 1st April 2021 up to and including 31st March 2023.

  • A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances.
  • A first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.

What are the benefits?

Let’s say you have spent £10,000 on a piece of new machinery. Previously, the first-year allowance would have allowed 100% (£10,000) to deducted from profits, giving a tax saving of £1,900 at the normal corporation tax rate of 19%. With the new increase in allowance, you could deduct 130% (£13,000) of the cost from profits, giving a corporation tax saving of £2,470.

 EXAMPLEPrior to 1st April 20211st April 2021 to 31st March 2023
Tax saving£1,900£2,470

This super deduction will be beneficial for business as it will mean they are able to cut their tax bill by up to 25p for every £1 they invest in qualifying assets. The policy has been put in place with the objective of stimulating investment in the economy by increasing the incentive for businesses to purchase capital assets.

If you would like help with this new tax relief, please get in touch.

If you need help applying for the new SEISS grant or need a few more questions answered, we are here to help please get in contact.

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Jo Gilbert
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