First Year Allowances
On the 3rd March 2021, the government announced the following temporary first-year allowances (FYAs):
The super-deduction
This gives a 130% FYA for expenditure on plant and machinery (P&M) that would fall within the main pool. This means that for every pound a company invests, their taxes are cut by up to 25p.
Expenditure is classed as super-deduction expenditure where all the following conditions are met:
- It is incurred on or after 1 April 2021 and before 1 April 2023.
- It is incurred by a company within the charge to corporation tax.
- It is expenditure on plant or machinery which is unused and not second-hand.
- It is not within any of the general exclusions - common examples include where the the asset is a car; where the asset is acquired in the period in which the qualifying activity is permanently discontinued and where expenditure is incurred on the provision of P&M for leasing.
Example
Example Ltd purchases new computer equipment for £100,000 on 31st May 2021.
The computer equipment is qualifying plant and machinery and therefore meets the conditions for the super-deduction.
The amount of the super-deduction is £130,000 (£100,000 at 130%). This will receive corporation tax relief at 19% which is £24,700.
Had this purchase been made prior to 1st April 2021, it would have fallen within the company’s annual investment allowance, producing relief of only £19,000 (£100,000 at 19%).
The SR Allowance
An “SR allowance” – in the form of a 50% FYA – may be claimed in respect of qualifying expenditure (referred to as “SR allowance expenditure”).
Expenditure is considered SR allowance expenditure where all the following conditions are met:
- It is special rate expenditure.
- It is incurred on or after 1 April 2021 and before 1 April 2023.
- It is incurred by a company within the charge to corporation tax.
- It is not within any of the general exclusions - common examples include where the asset is a car; where the asset is acquired in the period in which the qualifying activity is permanently discontinued and where expenditure is incurred on the provision of P&M for leasing.
What is plant and machinery?
The kind of assets that will qualify for either the super-deduction or the 50% FYA include, but are not limited to:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks
- Electric vehicle charge points
