The extended AIA and super deduction – use now to avoid reducing rates

For farm businesses that are planning investment in new plant and equipment, the incentives offered through current tax reliefs have rarely been greater, but at a time of significantly increasing costs, difficulties with budgeting and farm forecasts being thrown into disarray.

Super deduction

The ‘super deduction’, which allows companies to claim 130% relief on the acquisition of certain new plant and machinery, runs to the end March 2023. This means that for every £100,000 invested in qualifying assets, the business will receive a £130,000 deduction against its taxable profits in the year of acquisition.

Annual Investment Allowance (AIA)

The Annual Investment Allowance (AIA), which has also been extended through to 31 March 2023, means that expenditure by sole traders, partners and companies on qualifying plant and machinery up to £1 million provides a 100% deduction for tax purposes.

But the clock is ticking to take advantage of these reliefs.

Martyn Dobinson, partner, and a member of the firm’s Land and Rural Business Group, says:

“This super deduction encourages companies to invest in qualifying plant and machinery including tractors, lorries and vans. Companies subject to UK corporation tax can claim 130% capital allowances on equipment that would normally be relieved at just 18% per annum.”

Key points to consider for eligibility for the super deduction are that:

• The assets acquired must be new and unused.
• It only applies to contracts entered into after 3 March 2021
• It can cover capital expenditure on qualifying plant and machinery up until 31 March 2023.

However, where assets on which the super deduction has been claimed are disposed of before 1 April 2023 there is a clawback mechanism.

Regarding the AIA:

• The AIA allows businesses to deduct the full value of the first £1 million of qualifying expenditure from its taxable profits in the year of expenditure. Regular writing down allowances (WDAs) are then claimed on any expenditure exceeding this limit.
• The £1 million AIA runs to 31 March 2023. Where an accounting period straddles this date, the limit is apportioned, as it is for accounting periods that are not 12 months in length.
• The AIA can be applied to the purchase of second-hand assets which do not qualify for the super deduction, and it can be applied to purchases of ‘special rate assets’ that attract relief at the lower rate of 50% under the super deduction.

Martyn adds:

“Qualification for the super deduction and the AIA differs, and the interaction between the two, where both can be claimed, needs careful consideration to ensure that tax relief is maximised.

“Additionally, where trading losses arise as a result of claiming the super deduction or AIA, the taxpayer may be able to carry those losses back to obtain relief, or for companies, pass them to other group companies.

“It’s important to note that the super deduction is only available to companies, and that the AIA is not available to trustees or mixed partnerships (partnerships in which at least one of the partners is a company or another partnership). As ever, taking professional advice is important.”