Capital Allowances Update

Temporary Annual Investment Allowance of £1 million has been extended until 1 January 2022

HM Revenue & Customs have recently announced that the temporary increase of the Annual Investment Allowance from £200,000 to £1 million has been extended until 1 January 2022. This is very good news for clients who make large plant and machinery purchases as the allowance had been due to revert to £200,000 at the end of this year.

The Annual Investment Allowance was temporarily increased to £1 million between 1 January 2019 and 31 December 2020. By extending the allowance for a further 12 months the Government is supporting businesses to invest for the future.

If your business is considering making large fixed asset purchases in the near future then please speak to us beforehand to ensure that the business will be entitled to claim this generous allowance which provides 100% tax relief on the cost of qualifying plant and machinery of up to £1 million. If your financial year will straddle 31 December 2021, then the transitional rules will apply so please ask us to advise you further as there can be unexpected consequences arising from the timing of the expenditure.

Capital Allowances and cars – changes from April 2021

The 100% first year allowance on new and unused cars emitting no more than 50g/km of CO2 comes to an end on 31 March 2021. From that date onwards the 100% first year allowance will only be available on new and unused cars with zero emissions (electric cars). Cars with CO2 emissions of 50g/km or less would include hybrid vehicles and electric vehicles. If you are thinking about buying a new and unused hybrid car in your business then you should ensure that you do so before 31 March 2021 if you want to take advantage of this valuable tax relief.

Where a car does not qualify for the 100% first year allowance, a writing down allowance will be available instead. Currently, this will be at the main rate of 18% for new and unused cars emitting between 50g/km and 110g/km of CO2. This main rate also applies to second-hand cars emitting up to 110g/km, including electric cars. For new and second-hand cars that emit more than 110g/km of CO2, the writing down allowance is currently at the special rate of 6%. From 1 April 2021, new and second hand cars purchased that emit more than 50g/km will be added to the special rate pool.

As a reminder, ‘new and unused’ means ‘new and not second-hand’. HMRC will accept, however, that a vehicle is unused and not second-hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser, or used as a demonstration car. An ex-demonstrator vehicle, therefore, should be accepted as new and unused for the purposes of capital allowances.

Should you wish to discuss this further, then please do not hesitate to contact us.