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Market Deeping accountancy firm Moore Thompson says capital allowance scheme could lead to huge tax savings

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Businesses across the country are grappling with a cost crisis and investing in new machinery or equipment may be the last thing on their mind, writes Matt Upex, of Moore Thompson.

However, failing to invest within the current tax year could mean that companies miss out on a huge tax saving through the current Capital Allowance schemes.

Businesses now have less than 12 months remaining to make full use of the current super-deduction before this temporary corporation tax relief ends on March 31, 2023.

Matt Upex (4660225)
Matt Upex (4660225)

Thanks to the super-deduction, companies can claim allowances of 130 per cent on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances, which they can use to reduce the corporation tax liabilities. This allows companies to cut their tax bill by up to 25p for every £1 they invest.

Most incorporated businesses can also claim a first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for special rate writing down allowances.

To benefit from the relief, the assets purchased must be new and not second hand or refurbished equipment.

Moore Thompson
Moore Thompson

Many companies have already taken advantage of this significant tax saving, but there are growing concerns that many others may miss out on this opportunity to cut their Corporation Tax bill.

Unfortunately, the super-deduction is only available to incorporated companies, but unincorporated businesses, such as partnerships and sole traders, can continue to benefit from the Annual Investment Allowance (AIA) which permits a deduction of 100 per cent for qualifying plant or machinery expenditure up to the threshold of £1m until March 2023.

With only a year remaining for companies to make full use of both of these generous capital allowance schemes, businesses need to act now and plan their investments wisely.

It may be beneficial, in some cases, to bring forward planned expenditure for future years to take advantage of these schemes in the current tax year.

Businesses need to be aware that the rate of the super-deduction will require apportioning if an accounting period straddles 1 April 2023.

The rate should be apportioned based on days falling before 1 April 2023 over the total days in the accounting period.

However, unlike the AIA there is no cap and so it may be possible to bring forward your company’s financial year-end to benefit from a greater Corporation Tax savings sooner.

Capital Allowances are a great, if sometimes underused, method of reducing Corporation Tax while acquiring new plant and machinery that your business needs to grow. If you need advice on these allowances, please speak to our team by calling 01778 380850 or visiting www.moorethompson.co.uk

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