Chris Kelly, from Jacobs Allen, has some advice on making use of some new tax incentives
Now is the perfect time for companies to bring forward capital investment in plant and machinery.
In the Spring Budget, the Chancellor announced a range of temporary tax incentives in the form of enhanced capital allowances designed to boost economic activity.
The government initially excluded commercial landlords but is now proposing extending these incentives to them. This is very welcome as commercial landlords have previously been left out of most government support measures during the pandemic.
If your company has identified productivity enhancing plant and machinery that it wants to invest in, but either does not have the spare cash available or is retaining cash resources until the economy has recovered, an alternative could be to spread the investment cost by using hire purchase finance.
The hire purchase interests costs will, in effect, be subsidised by the extra tax saving of the enhanced capital allowances. It is also worth bearing in mind that the offer of interest free credit by a supplier might not be the most cost-effective option if you could obtain a cash discount by financing elsewhere.
The timing of the expenditure and contract terms can often be relevant in maximising this opportunity. Proceeding with a project based on a tax incentive in isolation is not usually the best course of action.
What are the new allowances?
- Companies can claim a super-deduction by writing off 130% of qualifying expenditure on plant and machinery in the first year.
- Companies can write off 50% of their expenditure on special rate pool assets in the first year, including integral features in a building and long-life assets.
These new allowances apply for capital investments made between 1 April 2021 and 31 March 2023. However, the allowances are only available to companies subject to corporation tax (not individuals, partnerships, or LLPs).
What investments qualify?
Assets eligible for super-deduction include fire alarm systems, security systems, bathroom sanitaryware, carpets, computer equipment and servers, tractors, lorries and vans, ladders, drills and cranes, office desks and furniture, refrigeration units and electric vehicle charging points.
Special rate pool expenditure includes heating and cold-water systems, electrical systems, air conditioning, lifts, solar panels, and thermal insulation to an existing commercial building.
However, it is important to remember that certain assets do not qualify for example, cars and second-hand assets.
The decision about proceeding with a substantial capital investment is really a combination of the tax treatment, commercial viability, and financing. Involving your accountant in advising on or sense checking your thought process should ensure you maximise the value for your company.