What does the temporary tax relief on capital expenditure really mean?

The 1st of April sees the government announcing a temporary introduction of increased reliefs for expenditure on plant and machinery. Well we say temporary, but actually it applies to any qualifying expenditure incurred from 1st April 2021 up to and including 31st March 2023!

Great news for many that are emerging from the pandemic and potentially for the economy too. It is ideal for businesses that were looking to invest in the heady days at the beginning of 2019 when we had no idea of what was to come, but then changed their minds. Or for those targeting the next few months to shift direction, increase production and attempt to get back on track. It signals a significant support and a great opportunity for any company seeking asset finance and looking to invest. Granted there is an emphasis on ‘qualifying expenditures’ but the summary provided on the government website is clear.

  • A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
  • A first year allowance of 50% (FYA) is available on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances and is available for expenditure incurred on special rate (including long life) assets

What are the conditions of the temporary tax relief on capital expenditure?

Any scheme like this is obviously not without its restrictions. So true to form there are a number of conditions that must be met, but they are relatively easy to understand and practical.

These include:

  • The expenditure is incurred by a company within the charge to corporation tax
  • The plant or machinery must be new and unused
  • The expenditure must be incurred on or after 01 April 2021 and before 01 April 2023
  • Expenditure incurred as a result of a contract entered into before 03 March 2021 is not qualifying expenditure for these new reliefs
  • The relevant asset is not used for leasing

Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must also meet additional conditions to qualify for the super-deduction and special rate relief. The extent of which looks like they are still being determined. We also need to be mindful that assets that have been claimed under the super-deduction, will have their disposal value for capital allowance purposes affected which is explained in more detail on the government’s website.

However, the measure does temporarily amend the rules covering expenditure incurred on plant and machinery used partly in a ring fence trade in the oil and gas sector.

What is eligible under the temporary tax relief on capital expenditure?

At the time of writing, there is sadly not a definitive list of what is considered plant and machinery for the purposes of capital allowances. Broadly put at this stage, we can only assume that these terms cover most capital equipment/apparatus kept for use in the business.

Normally plant and machinery are generally split between ‘main rate’, ‘special rate’ and ‘non-qualifying’ assets. Diving into the detail, there is some high-level guidance on what counts as plant and machinery, with additional guidance on main rate and special rate pool assets.

Looking through it all, whether an asset is or is not qualifying is difficult to answer at this time. But structures and buildings will not be considered plant and machinery for the purposes of capital allowances, however they may qualify for the separate structures and buildings allowance. Such assets are not in scope of the super-deduction.

To help the HM Treasury have published a factsheet on the super-deduction outlining more specific details which may be helpful. However, please note the HMRC guidance has not been updated to reflect the new allowances yet; which means that more detailed guidance will probably be published in due course.

So, all in all good news if your business is considering an expenditure which falls within the parameters over the next couple of years, but maybe watch this space!


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