In the recent autumn statement, the government confirmed that there would be no extension to the 130% super deduction, confirming the end date as 31 March 2023. Here we provide a reminder of what can be claimed and how to ensure this highly beneficial relief is not missed out.
What are they?
Capital allowance super deductions are a temporary first year allowance which provides 130% tax relief against the main plant & machinery pool expenditure. Available to companies subject to corporation tax including non-resident landlords. Expenditure must be contracted after 3 March 2021 for expenditure incurred after 1 April 2021 and before 31 March 2023.
In addition, there is a temporary first year allowance, the special rate allowance offering 50% tax relief against the special rate pool expenditure.
Main plant & machinery expenditure relates to those assets that are more trade specific. In the context of building expenditure these include IT, security, fire protection, furniture and fittings, sanitaryware, and specialist items such as demountable partitions, and decorative assets.
Whereas the special rate allowance is for assets that have a longer depreciation life including lifts, air conditioning, heating and electrical systems, hot and cold water and thermal insulation. In addition, to increase the value of claims further all associated costs such as contractor preliminaries and certain professional fees can be apportioned.
Benefit to claim?
The super deduction provides a 130% first year allowance which means not only are you getting tax relief against the full cost of the asset, but you also receive an extra 30% on top. This equates to a 24.7% tax cash saving, meaning that the net cost of the asset is reduced to 75.3%.
Special rate allowance assets, are usually written down at 6% per annum so by claiming them at 50% in year 1, provides a significant acceleration in obtaining the tax relief.
Issues to overcome
To claim both reliefs the claimant must demonstrate to HMRC that the expenditure has been ‘incurred’. Under the capital allowances legislation, it is when there is an unconditional obligation to pay. For a typical building project this will be triggered when the contractor’s valuation is certified to be paid.
Then as a result, it must be shown that the asset belongs to the claimant. For some assets there may need to be some form of vesting certificate provided to demonstrate the contractual ownership having passed.
As with all capital allowances claims, evidence to support both the timing, as well a as case for eligibility of an item must be available in the event of an enquiry.
For those tax year ends that straddle the end date 31 March 2023, the extra 30% of relief is time apportioned based on when the claimant year end falls.
To understand more about how to benefit from these temporary first year allowances please contact one of the directors.