First Year Allowances

Sophie Bancroft • April 11, 2021

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


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