With the rapid progression of the UK’s COVID vaccination programme and reduction in lockdown restrictions, it is anticipated that many businesses could see an increase in the number of employees attending office premises over the next six to nine months.
Super-deductions
The preparation for the return to the workplace will no doubt have a financial impact on many businesses as they upgrade equipment and make their offices a safer and more flexible working environment.
From April 1st 2021 until March 31st 2023, there are two new reliefs available to companies that qualify with expenditure on plant and machinery assets. The two reliefs are:
• A 130% super-deduction capital allowance qualifying plant and machinery
• A 50% first-year allowance (FYA) for special rate assets.
This means that companies will be able to save up to 25p in tax for every £1 invested.
The 130% super-deduction is for assets that would normally qualify in the main pool for capital allowances with a writing down allowance (WDA) of 18%. This includes plant, machinery, furniture, etc. This means if a company spends £100,000 on qualifying office equipment, the company can claim a deduction of £130,000 against taxable profits.
The 50% FYA is for assets that normally qualify in the special rate pool with a WDA of 6%. These are integral features such as air-conditioning, lifts and water heating systems.
What is Plant and Machinery?
Despite the industrial term, plant and machinery generally refers to the equipment used for carrying on a business (‘tools of the trade’). While it can include machines, it can also include any number of office items including fire alarms, security systems, carpets, computers and refrigeration to name just a few.
What can be claimed?
In general, you can claim capital allowances when you buy qualifying assets. In the current climate, all types of business are evaluating how they can optimise their workspace to provide more flexibility and provide a more agile working environment. The items must be new or unused.
You can claim a super deduction on:
• Office chairs and desks, particularly any office furniture that allows distancing between staff.
• Computer equipment and servers, for example laptops and equipment to enable staff to work remotely and more flexibly.
• The creation of flexible workspaces and areas within the office to facilitate collaboration may create opportunities to claim additional allowances.
• New heating or air conditioning systems, to increase the ventilation.
For businesses moving to increase or decrease office space:
• Blinds and curtains, carpets and lighting systems.
• Microwaves, coffee machines, fridges, freezers, utensils and even cutlery racks can all qualify for capital allowances.
What can’t be claimed?
Unfortunately, cleaning items, hand sanitisers and PPE (disposable or reusable) typically fall under the general expenditure. Therefore, capital allowances would not usually be applicable to these items.
When are they suitable to use?
The allowances are only available to companies, and not to individuals or partnerships. And as mentioned previously, the expenditure must be new and unused to qualify for the allowance.
It also makes sense to use if the investment is to be held at least until April 1st 2023.
When are they not suitable for businesses?
If you plan to dispose of the asset before April 1st 2023, a balancing charge will be due. This will effectively claw back the tax relief given. The balancing charge is then multiplied by the relevant factor 1.3. (Please note this applies only to the super-deduction and not the 50% FYA).
If you’re looking to purchase used or second-hand equipment, or you’re a sole trader or partnership, you may benefit from the Annual Investment Allowance (AIA) instead.
The AIA continues to be available alongside the new measures and remains at £1m until December 31st 2021 before dropping to just £200,000. However, the AIA can cover leased and second-hand assets.
How we can help
Separate and detailed records must be kept of the qualifying assets. Our friendly tax team can help you determine what is eligible, and help you make your claims. For further advice on making the most of Super-deductions, please get in touch with a member of our team of tax and business advisers.
Please visit www.carpenterbox.com or call Anthony Davies on 01903 234094.
