Capital allowance claims: a new office for the new normal

The UK’s COVID-19 vaccination programme is progressing rapidly and there has been a reduction in lockdown restrictions. Many businesses could therefore see an increase in the number of employees attending office premises over the next 6 to 9 months.

Super-deductions

Preparation for a return to the workplace will no doubt have a financial impact on many businesses. This includes upgrading equipment and making offices a safer and more flexible working environment.

From 1 April 2021 until 31 March 2023, there are two new reliefs available to companies who qualify with expenditure on plant and machinery assets:

  • A 130% super-deduction capital allowance qualifying plant and machinery
  • A 50% first-year allowance (FYA) for special rate assets

This means that companies will be able to save up to 25p of tax for every £1 invested.

The 130% super-deduction is for assets that would normally qualify in the main pool for capital allowances with a Writing Down Allowance (WDA) of 18%.. This includes plant, machinery, furniture, etc. For example if a company spends £100,000 on qualifying office equipment, they can claim a deduction of £130,000 against taxable profits.

The 50% FYA is for assets that normally qualify in the special rate pool with a WDA of 6%. These are integral features such as air-conditioning, lifts and water heating systems.

What is plant and machinery?

Despite the industrial term, plant and machinery generally refers to the equipment used for carrying on a business (‘tools of the trade’). While it can include machines, it can also extend to any number of office items such as fire alarms, security systems, carpets, computers and refrigeration.

What can be claimed?

In general, you can claim capital allowances when you buy qualifying assets. In the current climate, all types of business are evaluating how they can optimise their workspace to provide more flexibility and provide a more agile working environment. The items must be new or unused.

You can claim a super deduction on:

  • Office chairs and desks, particularly any office furniture that allows distancing between staff.
  • Computer equipment and servers, for example laptops and equipment which enable staff to work remotely and more flexibly.
  • The creation of flexible workspaces and areas within the office. This facilitates collaboration and may create opportunities to claim additional allowances.
  • New heating or air conditioning systems, to increase the ventilation.

For businesses moving to increase or decrease office space:

  • Blinds and curtains, carpets, and lighting systems.
  • Microwaves, coffee machines, fridges, freezers and utensils and cutlery racks. All of these items qualify for capital allowances.

What can’t be claimed?

Unfortunately, cleaning items, hand sanitisers and PPE (disposable or reusable) typically fall under the general expenditure. Therefore, capital allowances would not usually be applicable to these items.

When are they suitable to use?

The allowances are only available to companies, and not to individuals or partnerships. As stated before, the expenditure must be new to qualify for the allowance.

It also makes sense to use if the investment is to be held at least until 1 April 2023.

When are they not suitable for businesses?

If you plan to dispose of the asset before 1 April 2023, a balancing charge will be due. This will effectively claw back the tax relief given. The balancing charge is then multiplied by the relevant factor 1.3. (Please note this applies only to the super-deduction and not the 50% FYA),

If you’re looking to buy used or second-hand equipment, you may benefit from the Annual Investment Allowance (AIA) instead. This also applies if you are a sole trader or partnership,

The AIA continues to be available alongside the new measures and remains at £1m until 31 December 2021 before dropping to just £200,000. However, the AIA can cover leased and second-hand assets.

How we can help

Separate and detailed records must be kept of the qualifying assets. Our friendly tax team can help you determine what is eligible, and help you make your claims.

For further advice on making the most of Super-deductions, please get in touch with a member of our tax team or call 01903 234094.