In the 2021 budget, Chancellor of the Exchequer Rishi Sunak announced an all new ‘super-deduction’ capital allowance and first year allowance.
The aim of the new allowance is to provide businesses with the strongest incentive yet to make investments for today, and for the future, to boost the UK economy after a year of heavy upheaval.
Many business owners are looking at ways to use this to benefit their company. How then can you take advantage of this ‘Super-deduction’ to get your business Off Grid and do your bit for the planet?
What Does Capital Allowance Mean?
A Capital Allowance is an expense that you can claim against your firm’s taxable profits. Capital Allowances can be claimed on most assets that are purchased strictly for use within your business, particularly those that will have a lasting benefit for a year or more.
The definition of an asset is dependent on your business. An asset for financial advisors would be different than that of a clay pottery workshop. A valid type of expenditure could be a computer, a desk, tools, or even a van. If it’s strictly for work, it could apply.
Capital Allowances are ways of receiving tax relief on your business assets. Due to their status as a business expense they reduce your yearly taxable profits. There are three forms of capital allowance:
- Annual Investment Allowance (AIA)
- First Year Allowance (FYA)
- Written Down Allowance (WDA)
Assets that you register as a Written Down Allowance also have three separate pools of which rate they qualify for:
- Main Rate Pool – 18% rate
- Special Pool – 6% rate
- Single asset pool – 18% or 6% depending on the item
Regardless of which capital allowance scheme you are able to use, if your submission is accepted, the amount will be deducted from your company’s taxable profit for the year.
What are the Current Capital Allowance Rates?
Understanding the rules of capital allowances and how they can apply to benefit you and your business can be complicated. Tax rules are in constant-flux, and it can often feel like they are always getting more complicated.
An important thing to keep an eye on though is working out which capital allowance rates apply to you. If you can get to grips with this you should be able to much easier work out the correct level of tax relief available to you.
The government’s super deduction allows companies to benefit from a 130% first-year relief on any new plant and machinery fixed assets that previously would only qualify for the usual 18% writing down allowance.
Similarly, expenditure that previously would have only been submittable as a 6% writing down allowance, now qualify for 50% first-year relief.
The reliefs, be it 130% or 50%, do not apply to any assets that are bought used or second-hand, or were bought prior to the super deductions introduction. To qualify, the assets must all be new and purchased by you/your business for professional use only.
There is no exhaustive list of which investments would qualify as a main rate pool expenditure or as a special rate pool expenditure. Below is a summary of some of the typical assets which would qualify for each relief:
130% Super Deduction:
- Vehicles – Lorries, vans and tractors
- Technology – Computers, laptops and printers
- Building equipment – Ladders, cranes and drills
- Toilets and Kitchen facilities
- Office equipment – Chairs, desks, monitors
- Furniture and applicable machinery
50% First Year Allowance:
- Lifts, escalators, motorised walkways
- Water or office heating equipment
- Air conditioning/air cooling systems
- Hot and cold water systems
- Electricals
There is also no expenditure cap, and no limit on the amount of deduction your business can apply for.
Putting Theory into Practice
If you’re thinking about taking advantage of the current capital allowance rates, here’s a quick summary of how they can help:
Effect of 130% Super Deduction
Let’s say a business spends £5 million on assets that would qualify for the super deduction. We’ll first of all outline the implications if these purchases had been made before the super deduction came into effect, and what would happen if they were made now.
Scenario One: Purchases made before April 2021
- Company claims £1m in AIA
- Remaining balance of £4 million written down at 18% per year = £720,000
- Total tax deduction in year one = £1,720,000
- Tax saving at 19% = £326,800
Scenario Two: Purchases made while super reduction is active
- Company claims 130% super reduction = £6,500,000
- Remaining balance to write down = £0
- Total tax deduction in year one = £6,500,000
- Tax saving at 19% = £1,235,000
Effect of 50% First Year Allowance
Next, we’ll imagine the same firm made an additional £5 million worth of purchases that would qualify for the new first year allowance. Again, we’ll compare what would have happened before these rules came into place, and the impact they have now.
Scenario One: Purchases made before April 2021
- Company claims £1m in AIA
- Remaining balance of £4 million written down at 6% per year = £240,000
- Total tax deduction in year one = £1,420,000
- Tax saving at 19% = £269,800
Scenario Two: Purchases made while FYA is active
- 50% FYA Claimed = £2,500,000
- Total tax deduction in year one = £2,500,000
- Tax saving at 19% = £475,000
As you can see, both the super deduction and first year allowance can provide a much greater tax benefit than the previous rules.
How The Current Capital Allowance Rates Can Help You Go Off Grid
The professional world has never been more catered to home working. Over 1.7 million people in the UK work exclusively from home, and after a year of lockdown, an estimate of around 50% of people in the UK are currently working from home in some manner.
With workplace culture shifting from on-premises to at home, can current capital allowance rates help you disconnect and discover, and get Off Grid?
If you’ve been eying up a Live Off Grid converted shipping container for your business but have been unsure on whether to pull the trigger, now could be the time.
With assets such as office equipment, kitchen facilities, solar panels, and more qualifying under the government’s super deduction, you could find yourself saving money on your dream shipping container office.
For more information on furnishings for your business, contact Live Off Grid’s parent company LOFT for bespoke products and services. You’ll find a wide array of office furniture so you can fit out your shipping container office exactly how you want to.
A Live Off Grid converted shipping container can be used for a variety of business needs. Many people feel that they have gotten used to, and enjoy working from home, and many businesses are similarly seeing the benefits it can bring and are looking into alternative working solutions.
A converted shipping container office for example, while providing you with a stylish, private place to get work done, also has huge environmental benefits. Thanks to the government’s new super deduction, you could save yourself/your business a portion of the costs in the long run.
Get Ahead
The new super deduction allowances provide a highly attractive incentive for any businesses who may have been in a position to make capital investments, but feared they were unable to in the short-to-medium term due to the financial hit they took due to the lockdowns of the past year.
The super deduction scheme could open the door to a whole new world of opportunities for you and your business. Get informed, get ahead of everybody else, and allow yourself to experience a whole new world of possibilities with Live Off Grid. Disconnect and Discover.
If you have any questions about how the super deduction can help get you Off Grid please don’t hesitate to contact us.
