FA 2021: Capital allowances and the new super-deduction

The legislation contains numerous practical considerations with which tax professionals will need to grapple. These include:

Level of spend and carry back

There is no expenditure cap on either of the two reliefs (130% super-deduction and 50% first-year allowance) and no limit on the amount of the deduction. If this increases the company’s tax losses, options for relief including the temporary three year carry-back, bringing cashflow benefits upfront.

Property leasing businesses

Generally leased assets are excluded. However, the Act was amended to ensure the allowances are available in leased properties if the qualifying asset is provided for leasing under an excluded lease of background plant for a building (as defined in CAA 2001 s 70R).

Intangible fixed assets

a super-deduction advantage? Assets such as internally generated computer software may often be accounted for as intangible fixed assets (IFAs) and, as a result, are subject to the intangible fixed assets regime. The tax relief on qualifying IFAs will follow the accounting treatment with amortisation or impairment being deductible for tax purposes in line with the accounts. In light of the new super-deduction, claiming capital allowances may actually be more beneficial in some circumstances. An election under CTA 2009 s 815 gives effect to this claim.

Impact of new reliefs

A company cannot claim AIA and a super-deduction on the same amount of qualifying expenditure, thus in most cases it would make sense to prioritise the super-deduction where possible. However, the AIA could be useful in scenarios where the super-deduction is not available (for example, certain assets purchased used or second hand).

The interaction between AIA and the 50% FYA is not as straight-forward, with the basic rule being that AIA and the 50% FYA cannot both be claimed on the same qualifying expenditure. Care will need to be taken to consider the optimal capital allowances claim and the significance of any potential liability on the disposal of the assets will depend on the timing of the disposal and which allowance has been claimed.

2023 and the reduced super-deduction percentage

For spend in a period that straddles 1 April 2023, the super-deduction percentage is reduced from 130% to reflect the portion of the period falling after 1 April. This means that, depending on the accounting year, spend after 1 May 2023 will attract a super-deduction of less than 130%. This contrasts with the position from 1 April 2021, where there is no reduction in super-deduction percentage for periods starting before that date. This may therefore provide an incentive for clients to spend early. 

A super sales pitch

Clients are discovering that the super-deduction can be a helpful sales tool. Because their customers can claim relief upfront at 130%, their net cost is reduced. In other words, the super-deduction can make products cheaper. As a further boost to economic activity and incentivising early spend, this may be just the result the chancellor was looking for.