Our system of capital allowances has been with us since 1946. This important fiscal lever was designed to encourage business capital investment immediately after the Second World War. That economic objective still remains true today. 

Over the years, successive chancellors have made major changes and frequent tweaks to the capital allowances regime. Budget 2021 could be described as a ‘big bang’ moment in its history. In a measure designed to stimulate capital spending as the UK slowly recovers from the Covid-19 disruption, Chancellor Rishi Sunak unveiled an unprecedented super deduction first year allowance (SD FYA) of 130%.

This temporary tax break is available for new qualifying plant and machinery purchased between 1 April 2021 and 31 March 2023. This means that the tax relief on £100,000 of eligible expenditure would be £130,000 with a consequential corporation tax saving of £24,700 (19% x £130,000). However, there is a subtle twist when such assets are subsequently sold. In many cases, the 130% SD FYA may not represent an absolute tax saving since an immediate (enhanced) clawback of all or part of the allowance may be triggered (see below).

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