Capital allowance – Changes for plant and machinery expenditure

Capital allowances are a form of tax relief for businesses. They allow you to subtract some or all of the value of an item from your profits before you pay tax.

Capital Allowances can be claimed on a variety of:

• Machinery

• Equipment

• Business vehicles, such as vans, lorries or trucks

These assets are commonly known as plant and machinery.

The new capital allowance measures for plant and machinery

From 1 April 2023 to 31 March 2026, the UK Government will implement a 100 per cent tax deduction for capital expenditure on plant and machinery.

This effectively replaces the current 130 per cent super-deduction for capital allowances on qualifying plant and machinery assets.

To encourage investment, the measures will temporarily increase the relief provided for capital spending on plant and machinery during the year the expenditure takes place.

For qualifying expenditure, companies can claim:

• 100 per cent first-year allowance for main rate expenditure, also known as full expensing

• 50 per cent first-year allowance (FYA) for expenditure by companies on new special rate (including long life) assets

The amount of funding that can qualify is uncapped, which means the more money that is invested, the more significant tax savings.

Annual Investment Allowance (AIA)

The UK Government is also making the increase to the limit for AIA from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery permanent from 1 April 2023.

This allowance is available for all businesses, including unincorporated businesses and most partnerships.

Capital allowances for plant and machinery play a significant role in promoting business growth and economic development.

By providing tax relief on investments in plant and machinery assets, the Government is encouraging businesses to undertake new projects and update their operations.

Need advice on capital allowances for your business? Contact one of our experts today.

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