Generally, capital items are those items that will have enduring benefit to your limited company. Examples are computers, tools, office furniture and motor vehicles. If the items purchased are owned by the business, capital allowances will be claimed rather than the full cost being an allowable expense in the year of purchase.
130% “ Super-deduction “and 50% First Year Allowances
From 1 April 2021 and 31 March 2023, companies will be able to claim a 130% deduction for most new plant and machinery, ( i.e. computers, tools and office furniture, vans- but excluding cars). For those assets which are not new, businesses can claim an ‘annual investment allowance’ which effectively gives a 100% deduction on expenditure up to a maximum of £1 milllion per annum and a writing down allowance of 18% p.a. on the excess. Whereas, this new relief allows a 130% deduction in the year of expenditure, without a maximum cap.
- This new super deduction cannot be claimed against the purchase of used or second hand assets.
- Or for expenditure where contracts were entered into prior to 3 March 2021 (i.e. businesses cannot claim this new deduction if they had already committed to the expenditure prior to the Chancellor’s budget).
- This allowance will be available on assets acquired through hire purchase contracts, but there are additional considerations for assets acquired through other types of leases, therefore advice should be sought on these areas.
- The annual investment allowance of 100% is still available on computer equipment etc that doesn’t meet the super-deduction criteria, such as used or second hand acquired assets.
The capital allowance rate for motor vehicles will be dependent on the CO2 emissions of the vehicle. For 2022/23, cars with CO2 of nil benefit from 100% capital allowances, vehicles with CO2 emissions between 1-50 are entitled to annual capital allowances of 18% and emissions over 50 are entitled to annual capital allowances of 6%.
If the capital item has been purchased on Hire Purchase or it is leased, then the interest/lease payments can be claimed as a revenue expense.
Reimbursement of the upkeep, repair and replacement of tools and equipment is allowable where these items are used wholly for work. There should be no element of personal use of tools or equipment and they must not be capital expenditure fixed assets belonging the company.