Tax reliefs on business capital assets

With the recent budget announcing a new “super deduction” tax relief now would be  a good time to consider asset purchases and the tax reliefs available for your business.

What is a Capital (or fixed) Asset?

Simply put, it is expenditure on equipment used in your business that you plan on keeping for longer than a year. In accounting terms they are treated differently to your day to day running costs. Depending on the asset it will still qualify for tax reliefs. Either the Annual Investment Allowance (AIA) or Written Down Allowances (WDA).

Annual Investment Allowance (AIA)

Each year a company can reduce the taxable profit by 100% of the purchase price of any qualifying assets. Currently the threshold is set to £1 million and is due to go back to £200,000 on 1st Jan 2022. 

Written down allowances (WDA)

This is an allowance claimed each year if it doesn’t qualify for AIA (for example, cars, gifts or things you owned before you used them in your business). For most items the rate is 18%, however there is a lower special rate of 6% for:

  • integral features of a building e.g. on Furnished Holiday Lets or commercial property
  • items with a long life, 
  • thermal insulation of buildings, 
  • cars with CO2 emissions over a certain threshold. 

Super deduction relief
Officially announced at the budget on 3rd of march, this super deduction tax relieefs will run for two years. This will apply for expenditure incurred from 1 April 2021 to 31 March 2023. This will allow a 130% deduction for investments which would normally qualify for 18% plant and machinery writing down allowances. The new allowance also allows for a first year allowance of 50% on special rate pool expenditure (which normally only attracts 6% writing down allowances).

Unlike the other allowances detailed above, this will only apply to corporation tax. Whereas he above (AIA & WDA) also applies to self employed businesses). It will also only apply to new assets only (not second-hand). 

So what does that mean for my business?
Basically, you will get more tax relief on fixed asset purchases, saving you tax. Prior to this being introduced the asset would get 18% per year or 100% tax relief if it qualified for the Annual Investment Allowance.