What a year since the last Budget in March 2020!  On 3 March 2021, Chancellor Rishi Sunak announced some changes to capital allowances in Budget 2021, as noted below.

Super Deduction

• New rates as follows:
  • Main (or General) Pool Plant becomes Super Deduction increased to 130% (previously 18%),
  • Special Rate Pool becomes SR Allowance and increased to 50% (previously 6%),
• Applicable from 1 April 2021 to 1 April 2023 for companies within the charge to Corporation Tax (CT).
  • This neatly coincides with the planned increased in CT rates (as noted below) from 1 April 2023!
• Assets must be new and unused, so not second-hand.
• Does not apply to payments for existing contracts, where that contract was in place before 3 March 2021 (so does not apply to invoices dated after 1 April 2021 for such works).
• Does not apply wholly or partly to a ring fenced trade.
• Does not apply to the following general exclusions (CAA2001 s46 (2)):
  • The period where the qualifying activity is permanently discontinued;
  • The provision of a car;
  • Leasing (but excludes Background Plant let by a Property Company),
  • Other general exclusions including long funding leasing, gifted assets, connected party transactions, general tax avoidance due to changes in the nature of trade etc.
• The above rates are proportionally adjusted for accounting periods straddling 1 April 2023.
• For disposals of Super Deduction or SR Allowance assets after 1 April 2021, the company is subject to a balancing charge and special rules apply, depending on the applicable rates claimed.
  • Again for accounting periods straddling 1 April 2023, a proportional adjustment is calculated.
• There are specific rules around contrived arrangements to obtain a tax advantage e.g. claiming the enhanced 130% or 50% when they would not be due, or avoiding or reducing the balancing charge.

Freeports

• In England these have been designated as:
  • East Midlands Airport; Felixstowe and Harwich; Humber (including Hull, Grimsby, Immingham and Goole); Liverpool City Region; Plymouth and South Devon; Solent (including Southampton); Thames (combining London Gateway and Tilbury ports); and Teesside.
  • Sites in the remainder of the UK to be confirmed.
• 100% Enhanced Capital Allowance available to companies installing new or unused qualifying plant and machinery.
  • ECA available for specific qualifying activities (e.g. trades, mines, transport undertaking, but not a property business), when assets primarily used in the Freeport tax site.
  • ECA available for expenditure incurred from when the tax site is designated until 30 September 2026.
  • Clawback if within 5 years of expenditure, the use is changed to primarily outside Freeport tax site.

As previously announced or expected:

Annual Investment Allowance (AIA)

• The 100% AIA has been £1,000,000 since 1 January 2019.  The Autum Budget 2021 extended this until 31 March 2023.
• The AIA will return to £200,000 on 1 April 2023.
  • As a reminder, the AIA allows a 100% deduction for qualifying plant and machinery expenditure upto the AIA limit incurred in a company or group of companies.
  • Above the AIA, the usual capital allowances writing down allowances apply.

First Year Allowances (FYA) for business cars

• From April 2021, 100% FYAs will apply to zero emission vehicles (ZEVs) only.
• The main rate writing down allowance (WDA) of 18% will apply to cars with emissions up to 50g/km.
• The special rate WDA of 6% will apply to higher polluting cars with emissions above 50g/km.
• 100% FYAs for zero emission goods vehicles and natural gas and hydrogen refuelling equipment will also be extended to April 2025.

Also relevant for many companies and businesses, but not my area of expertise (so please refer to your usual tax advisor!):

• Loss Relief – The loss carry back provisions will be extended from 1 year to 3 years.  This applies for accounting periods ending between 1 April 2020 and 31 March 2022 (CT); and for tax years to 5 April 2021 and 2022 (IT).  This extension is capped at £2m of losses per period.
• Corporation Tax Rate (CT) – The CT rate will increase to 25% from 1 April 2023 for companies with profits of £250,000 or higher.  There will also be a small company CT rate of 19% for profits lower than £50,000, with tapering in between.