The Finance Act 2021 introduced the capital allowance “super-deduction” and special rate first year allowance as a temporary measure. These provide relief for companies on qualifying expenditure on new plant or machinery from 1st April 2021 to 31st March 2023. They are valuable reliefs, but the date of expenditure is important for the asset to qualify.
There are two types of enhanced relief:
- A super deduction of 130% allowances on new plant and machinery that is not special rate expenditure, i.e., it would normally qualify for the 18% main writing down allowance; and
- A first-year allowance of 50% on new plant machinery that qualifies as special rate expenditure, i.e., it would ordinarily qualify for the 6% rate writing down allowance.
Note that assets purchased under a hire purchase contract entered into on or after 3rd March 2021 will be eligible for the enhanced allowances, provided they meet specific conditions. Also note that when assets are subsequently sold, a balancing charge will arise. It is therefore essential that separate records of qualifying assets need to be maintained for the purpose of quantifying the charge.
Example
Fastfleet Ltd expanded its operations during Covid and was very successful. During the year ended 31st March 2022 the company incurred the following expenditure:
| 30/09/2021 | Two New Lorries | £350,000 |
| 31/10/2021 | Two Fork-lift Truck (Second Hand) | £42,000 |
| 30/11/2021 | Solar Panels for Warehouse Roof | £380,000 |
The existing down values at 01/04/2021 were £375,000 (main pool) and £25,000 (special pool).
The company’s 2021/22 capital allowance computation will be as follows:
| FYA | Main Pool | Special Rate | Allowances | |
| WDV Bought Forward | 375,000 | 25,000 | ||
| WDA 18% / 6% | (67,500) | (1,500) | 69,000 | |
| Annual Investment Allowance | ||||
| Forklift Trucks | 42,000 | |||
| Solar Panels | 380,000 | |||
| AIA – 100% | (42,000) | (380,000) | 422,000 | |
| Super-deduction | ||||
| Lorries | 350,000 | |||
| FYA – 130% | (455,000) | 455,000 | ||
| WD Value c/f | £ – | £307,500 | £23,500 | |
| Total Claim | £946,000 |
Note that the cost of the solar panels represents special rate expenditure, normally attracting a 6% WDA. Since the panels are new, they qualify for the temporary 50% FYA. However, because Fastfleet Ltd has sufficient AIA capacity, it is preferable to claim a 100% AIA on them instead.
Note too that the Forklift trucks, being second hand, do not qualify for the super-deduction. Instead, a 100% AIA claim is made.
Let C&H Stedman help you through the intricacies of enhanced capital allowances.
AIA – Annual Investment Allowance (extended to £1m to 31.12.2021)
FYA – First Year Allowance
WDA – Writing down Allowance
WDV – Written Down Value
