As a result of measures announced in the Budget, companies (not sole traders or partnerships) will now benefit from Super-Deductions, effectively enhanced capital allowances, when investing in qualifying new plant and machinery for the two years 1 April 2021 – 31 March 2023.
Capital Allowances allow companies to write off the cost of certain capital assets against taxable profits taking the place of accounting depreciation which is not normally tax deductible. These assets have to be tangible, expected to last more than 2 years and used in the business.
The new allowances are for investments in assets that qualify for the current main rate of capital allowances of 18% and will benefit from a 130% first-year allowance. This means that for every £100 that you spend, you can deduct £130 in computing your taxable profits. This is equivalent to a tax saving of 24.7%.
For example, if a company bought a new machine for its factory for £10,000 during April 2021, it could deduct £13,000 from its profits; at the present 19% rate of corporation tax this would reduce corporation tax by £2,470.
And, in addition investments in assets qualifying for the 6% special rate capital allowances benefit from a 50% first year allowance, equivalent to a £9.50 tax saving for each £100 invested (although claiming the 100% annual investment allowance instead where this is available will be more beneficial).
If you require help or advice on the above or other accounting matters, please contact Carla Hobby at Morris Lane on 01202 715950.