Equipment & Asset Finance – Capital Allowances
Also known as the ‘super deduction‘, there is an increase in what companies can claim back against their corporation tax when purchasing new assets or equipment.
Historically, companies could claim back the cost of new equipment and asset purchases as a P&L cost, meaning that their corporation tax was reduced as a result.
Until March 2023 HMRC are allowing companies to claim 130% of the capital cost as a deduction against corporation tax.
What Does The 130% Allowance Mean?
- If you buy a new piece of construction plant for £100,000
- The capital expenditure x 130% equals a £130,000 deduction from taxable profits
- Multiply this by the current rate of corporation tax (19%) and you get a £24,700 reduction in the company tax bill
This only applies to new assets, it is the Government’s way of incentivising companies to invest and expand as the economy gets back into gear.
As a guide, the 130% allowance could be used for:
- Construction plant
- Agricultural machinery
- Tractor units
- Trailers
- HGVs and LGVs
- Vans
- CNC and other types of equipment
When planning on buying an asset then talk to your accountant first to ensure you are purchasing the equipment in the best way possible.
The full HM Treasury guide to what you can claim for using this scheme and what assets are available can be read here:ass
Asset Finance Options & Equipment Finance Options
The standard options using the asset as security are;
- Borrowing up to £2m
- Secured by the asset
- Repayment term up to 7 years
- No minimum company turnover
In addition to the regular finance options the business can look to use standard unsecured lending (which can be quicker and work well with more unusual assets) or use the new Government Recovery Loan Scheme. Both of these offer an alternative that leaves the asset free from any charge by a lender and can remove the need for a personal guarantee.
Easier to Watch?
If you prefer to watch then the video below gives an overview of the capital allowance scheme and the ‘super deduction’, covering how it works and how it helps.
By Dave Farmer