As the period in which the 130% capital allowance super-deduction can be claimed draws to a close, many companies are finalising their capital expenditure and looking to fit in spend before the super-deduction ends on 31st March 2023.
For those that do not have a 31st March year end, there are transitional rules that cause some food for thought. These transitional rules apportion the super-deduction, pro-rating the 30% uplift based on the number of days in the company’s accounting period that are before 1 April 2023. This apportionment reflects the fact that the profits of the company will also be pro-rated, between the old corporation tax rate of 19%, and the new rate of 25%.
Example:
A company has an accounting period from 01/07/2022 – 30/06/2023. They incurred expenditure of £100,000 on machinery on 03/12/2022 – this machinery meets the criteria for the super-deduction.
There are 365 days in the accounting period, of which 274 are before 1 April 2023.
We divide the days before 1st April 2023 by the days in the accounting period, then multiply by 30 and add 100 to give the super-deduction percentage:
(274 ÷ 365 x 30) + 100 = 122.52054%
The super-deduction amount will therefore be £122,521.
Companies should also be careful of the timing of the capital expenditure and which period it should fall into and make sure they don’t fall foul of the anti avoidance rules. Whilst the super-deduction will end, companies are still able to claim Annual Investment Allowance (AIA) of 100% of the value of an asset, on costs post 1st April 2023, up to the annual limit of £1,000,000.
As always, companies should also consider their longer-term intentions regarding an asset. As assets obtaining the 130% super-deduction are not pooled in the capital allowances main pool, on disposal there will be a balancing charge. When the asset is disposed of after 1st April 2023, this charge will be taxed at 25% - effectively clawing back the balance of relief obtained on the initial purchase of the asset.
For more information, contact our Tax team: Maybeth Shaw, Claire McGuigan, Karen Doherty, Chris Hodgett, Lorraine Nelson, Rebekah Townsend.