Maximising the tax benefit from capital expenditure is often a balancing act of different considerations. Timing, in particular, can be key to getting the best outcome. Here are two deadlines to bear in mind if you have imminent plans for capital spending.
Strategically-timed capital expenditure now, in combination with the extended loss carry-back rules, may have the potential to create or enhance a trading loss and generate a tax refund.
The current rules bring specific incentives for capital spending:
- A temporary increase in the Annual Investment Allowance (AIA) is available both to companies and unincorporated businesses.
- The 130% super-deduction and 50% special rate allowance are available to companies.
The extended loss carry-back rules apply to trading losses for companies made in accounting periods ending between 1 April 2020 to 31 March 2022.
The rules also apply for trading losses made by unincorporated businesses in the tax years 2020/21 and 2021/22.
If you are planning capital expenditure, please speak to your RfM advisor about the best options on timescale. They can help you decide whether it is in your best interests to accelerate capital spending and bring it inside the relevant extended loss carry-back period.
Temporary higher AIA limit extension
The AIA limit – increased to £1 million from January 2019 – was due to drop back to £200,000 from 1 January 2022. However, in Autumn Budget 2021, the deadline was extended one last time. The AIA annual limit will remain at £1 million until 31 March 2023. This sets the AIA on a par with the super-deduction regime available to companies, as both will now end at the same time.
This extended availability period certainly gives businesses more time to take advantage of the higher allowance but, if you’re planning major capital expenditure, it’s worth taking stock now of the best time to buy.
The accounting year end is key to any decision on timing. We advise you to speak to us well in advance of the planned purchase to ensure you maximise the tax benefits available. Complex transitional calculations will be required once the super-deduction ends, and when the AIA returns to its usual limit.
Learn more about the Annual Investment Allowance here.
How we can help
Please get in touch if you would like to discuss your future plans to buy plant and equipment. We will also be happy to provide guidance on securing business funding, finance and grants in relation to capital investment. Enquire online or contact one of our offices.