Capital allowances are a form of tax relief that businesses can claim on certain assets, such as machinery, equipment, and business vehicles.
These assets are commonly known as plant and machinery. Capital allowances allow businesses to subtract some or all of the value of these assets from their profits before paying tax.
New measures for plant and machinery
Recent changes in UK tax law mean that from 1 April 2023 to 31 March 2026, a 100 per cent tax deduction will be implemented for capital expenditure on plant and machinery.
This replaces the existing 130 per cent super-deduction for qualifying assets. The relief provided for capital spending on plant and machinery will be temporarily increased during the year the expenditure takes place.
This means that companies can claim a 100 per cent first-year allowance for main rate expenditure (also known as full expensing) and a 50 per cent first-year allowance for expenditure on new special rate assets, including long life assets.
Annual Investment Allowance
In addition, the Annual Investment Allowance (AIA) limit for qualifying expenditure on plant and machinery will increase permanently from £200,000 to £1,000,000 from 1 April 2023.
This allowance is available to all businesses, including unincorporated businesses and most partnerships.
Capital allowances for plant and machinery expenditure play a significant role in promoting business growth and economic development.
By providing tax relief on investments in these assets, the Government is encouraging businesses to undertake new projects and update their operations.
The recent changes in UK tax law provide a further incentive for businesses to invest in plant and machinery, and the uncapped nature of the allowances means that the tax savings can be substantial.
