Month: March 2023

what are capital allowances

What are capital allowances?

Posted on | by Jade Donno | Leave a Comment on What are capital allowances?

Are you ready for some capital allowances fun? 🙌 🥳

Yeah, we know it’s not the most exciting topic, but stick with us because it’s important. Capital allowances are like the superhero of the UK tax system, providing businesses with tax relief on certain types of capital expenditure. However from April 2023, they’re changing! 

Super Deduction

First up, we have the Super-Deduction. This is a type of capital allowance that provides businesses with a 130% tax deduction on qualifying investment in new plant and machinery. That’s right, you heard us, 130%! It’s like getting an extra boost of power to your capital expenditure. This is designed to help businesses invest in new equipment and machinery, and has been a game-changer. 

But you better act fast because the Super-Deduction is only available for investments made between 1 April 2021 and 31 March 2023. So, if you’re planning to upgrade your plant and machinery, make sure to take advantage of this superpower before it’s too late. 

Special Rate Pool 

Next up, we have the Special Rate Pool, which is used for assets that are eligible for a lower rate of capital allowances. While it’s not as exciting as the Super-Deduction, it’s still an essential part of the capital allowances world. From April 2023, the rate for the Special Rate Pool will be reduced from 6% to 3%. It’s not ideal, but hey, we can’t win them all. 

Annual Investment Allowance

Moving on to the Annual Investment Allowance (AIA), which provides businesses with 100% tax relief on qualifying investment in plant and machinery, up to a certain limit. The good news is that the AIA limit is staying the same at £1million of capital expenditure. 

General Pool Allowances

Last but not least, we have General Pool Allowances. This allows businesses to claim tax relief on assets that don’t qualify for the AIA or exceed the AIA limit. From April 2023, the WDA rate will be reduced from 18% to 16%. It’s not a significant reduction but still something worth being aware of.  

In conclusion, the world of capital allowances is evolving from April 2023. But, as with any superhero story, there are some ups and downs. The Special Rate Pool and General Pool Allowance are getting a little weaker, while the super deduction is leaving us. So, make sure to plan your capital expenditure carefully and consult with a tax professional to ensure that your business is making the most of the available allowances. 

march budget update

The March 2023 Budget Explained

Posted on | by Jade Donno | 1 Comment on The March 2023 Budget Explained

The Chancellor announced his March budget today.

 

Similar to the budgets, autumn statements and ‘non-budget’ statements of the last few years we knew most of the details in advance. What we did find out yesterday is that UK PLC is in a better position than feared. It is believed that inflation will fall to 2.9% by the end of 2023. 

 

However, finding staff is a problem faced by most small businesses. This budget was the Chancellor’s way of helping alleviate this shortage. He has done this by:

  • Providing more funded childcare. 30 hours a week of free childcare is being extended to working parents of 1 and 2-year-olds. 
  • Increasing the pensions lifetime allowance from £1.07m to £2m
  • Increasing the amount people can pay into a pension tax free, i.e. from £40k per year to £60k per year.
  • Providing more money to schools to help with wrap-around care

 

Whilst these will help, the question is whether they are going to provide the much-needed increase in people going back to work? 

What was hoped was that the chancellor was going to stop the planned corporation tax rise from 19% to 25% for businesses earning between £50k and £250k in profits. Sadly, this tax rise and all its complications still take effect. These will prove very punitive if you run multiple businesses. 

 

What there was in the budget were the following announcements which will help businesses:

  • The 5p reduction in fuel duty is being extended for another year.
  • The energy price cap freeze at £2500 for consumers will be extended for another 3 months. I.e. until the end of June 2023
  • The Energy Bills Discount Scheme is being maintained until 31st March 2024 for all eligible businesses.
  • The 130% super deduction tax for investments in plant and machinery which stopped at the end of march is being retained but at the 100% level but with full expensing. 
  • 12 investment zones which will attract tax reliefs and grant funding
  • Small companies who spend over 40% of their costs on R&D will receive £27 from HMRC for every £100 of R&D investment.

 

What is full expensing?

In 2021, the government introduced the super-deduction to go further to encourage companies to invest. This was due to end on 31 March 2023. The government is now introducing full expensing, a 100% First Year Allowance, from 1 April 2023 until 31 March 2026. 

For investments in qualifying plant and machinery such as IT equipment the cost of these are normally taken over a period of years. I.e. If a laptop cost £1000 and was seen to last 10 years, its cost would be taken over a 10 year period. I.e. £100 per year. Whereas with full expensing, the £1000 cost can be taken in the year it was incurred. 

 

What do you need to do now?

Given the extra costs the government has now imposed on your small business AND the rising cost of energy bills AND the minimum wage increases AND the 10% inflation rate across 2023, you have work to do. Namely:

 

  1. If you haven’t already put together your business plan for 2023 and model the impact of rising costs. Do you need to:
    1. Increase your prices?
    2. Reduce your overheads?
    3. Increase your wages?
  2. Carefully look at your personal and business tax situation. For example:
    1. Would you be personally better off if you paid yourself more via PAYE or made more pension contributions? (particularly now you can add £60k into your pension pot each year tax free)
    2. Would closing your limited company and trading as a sole trader now make more sense?
  3. Who in your staff needs a pay rise to avoid falling foul of the rise in the National Minimum Wage?

 

Of course, give us a call if you need help with any of these next steps. We are here to help.