In the Budget in March this year, the Chancellor announced that the corporation tax rate would rise to 25% from April 2023, to help pay for the costs of the pandemic.
To compensate for this, and to encourage investment to rebuild the economy, he also announced that capital allowances for new plant and machinery would be given at 130% for two years from April 2021 to March 2023.
That is, if a company spends £100 on new plant it gets to write off £130 for tax purposes, instead of the actual cost.
That means an immediate saving of around 6% of the amount spent. Not a huge amount, but definitely worth thinking about.
This being quite a generous relief, there are of course a few complications and pitfalls to watch out for. The main ones are:
- It doesn’t apply to cars (not even electric ones)
- The plant has to be new and unused
- Buildings and plant integral to a building don’t qualify
- The company must be using the plant itself, not leasing it out
- Detailed records need to be kept, for when you sell or scrap the asset
That still leaves most plant and equipment qualifying, whether it’s production machinery, a new van, or an IT upgrade.
If you’re considering acquiring any new plant in the next couple of years, do get in touch – we may be able to help you save a reasonable amount of tax.