PLANT AND MACHINERY CAPITAL ALLOWANCES
Plant and Machinery Capital Allowances enable businesses to claim back capital tax allowance on certain company expenses. These can include items purchased for professional use by the business and are referred to as “plant and machinery”
WHAT QUALIFIES AS PLANT & MACHINERY FOR CAPITAL ALLOWANCES?
Plant and machinery is an old-fashioned term still used to describe assets used by the company, in order to carry out business operations.
It cannot include assets that were bought but not used for the purpose of benefiting the business.
Plant and machinery are often the things that you need to use to keep your business running, i.e, computers, office furniture, tools etc.
Sometimes plant and machinery capital allowance can also be used to cover the costs of demolishing a building that is being used as a business asset.
Plant is any equipment used to carry out business operations. It does not include the business premises but it can include equipment within them.
Machinery is any device with moving parts used to conduct business activities. The device does not have to be using electrical power.
What Are The Conditions For Granting Plant And Machinery Capital Allowances?
- The assets must be owned by the claimant
- The capital expenditure must be incurred on the asset concerned in the application for a tax return
- The asset must be in use at the end of the taxable year
- The asset must be used for the purpose of the trade or business whose profit is accessible for tax purposes.
PLANT AND MACHINERY INCLUDE:
- Fixtures – bathroom suites, CCTV, fire alarms
- Business vehicles (such as vans and cars)
- Integral features – heating systems, water systems, electrical systems, air-conditioning in the business property
- The costs incurred for destroying and/or removing existing plant and machinery
- Building alterations to allow the installation of additional plant and machinery for the benefit of the business
WHAT IS NOT CATEGORISED AS PLANT AND MACHINERY
- Plant and Machinery Capital Allowances can only be claimed for assets owned by the company. Also excluded are:
- Any structural parts such as bridges, roads and docks surrounding the business property.
- Entry points such as doors, windows and shutters
- Gas and water mains supply
- Any purchases made for non-business or entertainment purposes
What Are The Different Categories Of Plant And Machinery Capital Allowances?
Plant and machinery capital allowances are divided into 2 main categories:
Special Rate Plant & Machinery:
This includes any ‘integral features’ such as power, electricity and heating, hot and cold water, ventilation and air conditioning, solar panels and other long-life assets which are assets with a useful life of 25 years or more.
Main Pool Plant & Machinery:
This category includes all plant and machinery assets that aren’t special rate assets.
Businesses can Claim THREE TYPES OF PLANT AND MACHINERY CAPITAL ALLOWANCES
ANNUAL INVESTMENT ALLOWANCE (AIA)
WRITTEN-DOWN ALLOWANCES (WDAS)
Written-Down Allowances (WDAs) are available for businesses who have already claimed AIA and have exceeded the annual threshold, or if the asset in question does not qualify for AIA.
Written-Down Allowances have a flat rate and are split into three asset pools:
- Main Pool – flat rate of 18%. The main pool includes most plant and machinery.
- Special Rate Pool – flat rate of 8%. Can include long-life assets or higher emission cars
- Single Asset Pools – varying flat rate of 18% or 8% depending on the asset
FIRST YEAR
ALLOWANCE
The first-year allowance (FYA) allows businesses to claim a tax deduction of 50%. This is eligible on the cost of qualifying plant and machinery assets that have been bought in the same year. This means that businesses can deduct half of the cost of any eligible assets from their taxable income.
First-Year Allowances are created to encourage business owners to invest in energy-efficient equipment. They can be claimed together with AIA, as they don’t count towards it.
Rates Of OF PLANT AND MACHINERY CAPITAL ALLOWANCES
Plant and machinery capital allowances are available at several rates depending on the type of plant and machinery and when the costs were incurred:
This is a first year allowance (FYA) that applies to any money spent on new plant and machinery after April 1st 2021 and before April 1st 2024 and gives 130% tax deduction (30% more than the actual cost.) However, contracts to buy the assets must be entered into after 3rd March 2021.
The chancellor announced in the 2023 spring budget ‘full expensing’ for businesses who invested in new items of plant and machinery that qualify as main pool assets. Any costs must be incurred after April 1st 2021 and before April 1st 2026.
The annual investment allowance gives businesses the opportunity to immediately claim up to £1,000,000 of any qualifying investment of plant and machinery assets every year. This could easily make up a substantial proportion of tax relief for a business. In the 2023 spring budget, the annual investment allowance was permanently set at £1,000,000 for any plant and machinery assets bought from April 1st 2021.
This rate applies to any investment by businesses on all new plant and machinery assets that were bought after April 1st 2023 and before April 1st 2026. This rate gives 50% first year allowance for investment in special rate plant and machinery. Any set contracts to purchase new plant and machinery equipment must have been entered into after March 3rd 2021.
This plant and machinery capital allowance rate applies to assets that fall into the main pool category of allowances. This is the default rate if none of the above apply and totals at 18% a year.
This plant and machinery capital allowance rate applies to assets that fall into the special rate category of allowances. This is the default rate if none of the above apply and totals at 6% a year.
Does All Capital Expenditure Qualify For Capital Allowances?
Not all expenditure qualifies for capital allowances. The rule is generally that the asset must be owned by the company or claimant. Expenditure on the installation of plant and machinery or demolition costs of a property held as a fixed asset will qualify for plant and machinery capital allowance.
How Do I Claim Plant And Machinery Capital Allowances?
Due to the many complex rules, claiming plant and machinery capital allowances can be time-consuming and complicated even for experienced business owners, accountants and solicitors.
Plant and machinery capital allowances are not granted automatically they must be claimed as a tax return. However, there is no time limitation on claiming capital allowances as long as the asset is still owned and used within the business.
One important thing to remember is that businesses wishing to claim under AIA or the First-Year Allowance should submit their claim during the same accounting period that an asset was purchased, to claim the full available value.
We would advise that if purchasing an asset, acquiring a property as an asset, or completing any refurbishment projects, capital allowances are considered by the business early on in the purchase process in order to maximise tax savings.
CapEx Associates’ team of specialists can help you claim maximum plant and machinery capital allowances by completing the capital allowance section of the CPSE on your behalf.
We can help both local and national businesses as well as sole traders to claim all the tax they are entitled to. Get in touch today to find out more or visit us in our Solihull office.
Embedded Capital Allowances
Embedded capital allowances are items of plant and machinery that may qualify for capital allowances but are considered to already be a part of the building, these items include; toilets, baths, sinks, air conditioners etc.
There is no time limit to claim embedded capital allowances but you must still own the property and fixtures within the tax year that your claim is submitted.
How Can CapEx Tax Help?
Tax agents and advisers are important in helping businesses claim the maximum amount of tax relief possible. Speak to a capital allowances expert at CapEx Tax Associates who can help with reviewing and filling section 32 of the CPSE (Commercial Property Standard Enquiry).
Section 32 deals with Capital Allowances and whether the current owner has claimed for any ’embedded plant and machinery’ within the building.
It can be difficult to work out plant and machinery capital allowance and it can be time-consuming when running a business if information is missing or incomplete. Calculating the total amount of capital allowances owed is often complex to work out.
Having a capital allowances expert on hand will help you when valuing the total plant and machinery capital allowances that are available to you in difficult circumstances. CapEx Tax Specialists gave a highly skilled team of capital allowances experts who are qualified tax consultants.
Conveniently located in Solihull, in the heart of the West Midlands, our team of tax specialists can assist local and national businesses as well as sole traders.
Contact us today, our high level of expertise will help identify opportunities for Plant and Machinery Capital Allowances and claim maximum tax relief.
Frequently Asked Questions About Plant And Machinery Capital Allowances
If an asset qualifies for plant and machinery capital allowances but the annual investment allowances (AIA) have been fully utilised then the expenditure will be treated under the written down allowance as standard and receive 6% or 18% depending on whether the asset is classed as main pool or special rate.
You can claim plant and machinery capital allowances on commercial investment properties. For residential investment properties you cannot claim plant and machinery capital allowances unless the property is classed as a serviced apartment or holiday let. However, a claim for plant and machinery capital allowances can be made against residential investment properties if any installation of plant and machinery assets are made to communal areas of the building such as lifts, fire alarm installations, lighting, carpets etc.
Plant and machinery capital allowances can be deferred in whole or in part (if it is not beneficial to claim the full amount of capital allowances) and claim the residual allowances in the future. However, there can be disadvantages of not claiming capital allowances in the year the asset was purchased as you may not be able to benefit from using the 00% annual investment allowance (AIA).
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