Corporation Tax

The Annual Investment Allowance (AIA) gives a deduction of 100 per cent for qualifying plant or machinery expenditure against a business’s profits.

Most tangible capital assets purchased or leased by a business are considered plant and machinery to claim Capital Allowances.

When it comes to eco-friendly investments, this includes the purchase of solar panels and other energy-saving devices.

Unlike some Capital Allowance schemes, the AIA can also be claimed against second-hand and refurbished equipment.

An AIA limit of £1 million is now permanently in place.

If you plan to reduce your tax bill by using this allowance you should try and take full advantage of the higher allowance by bringing expenditure forward, where possible.

These are many forms of ‘tangible’ assets used in the day-to-day running of a business. Some examples include:

• Ladders, drills, cranes
• Office furniture
• Refrigeration units
• Electric Vehicle charge points
• Compressors
• Foundry Equipment
• Solar Panels

Certain expenditure is excluded, for example, the acquisition of company cars.

Like the AIA, where an asset qualifies for this allowance, you can deduct its full cost from your profits before tax.

You can claim ‘enhanced Capital Allowances’ for a wide range of eco-friendly improvements to your business, including:

• Environmentally beneficial and energy-saving technologies
• Electric cars and cars with zero CO2 emissions
• Zero-emission goods vehicles
• Equipment for electric vehicle charging points

To qualify for this relief the equipment must be new and unused. You also cannot typically claim items your business buys to lease to other people or for use within a home you let out.

You can claim the AIA in addition to this first-year allowance.

If you do not claim all the first-year allowance you’re entitled to, you can claim part of the cost in the next accounting period using writing down allowances.

You would typically use writing down allowances instead if you’ve already claimed AIA on items worth a total of more than the AIA amount or the item does not qualify for AIA.

From 1 April 2023, a new ‘full expensing’ Capital Allowance ensure that investments made by companies in qualifying plant and machinery will qualify for a 100 per cent first-year allowance.

This applies to main rate assets and ensure that companies across the UK will be able to write off the full cost in the year of investment.

If your company is investing in special-rate assets, including long-life assets, you can also benefit from a 50 per cent first-year allowance in the year of investment.

Unfortunately, expenditure on plant or machinery for leasing is excluded from first-year capital

allowances due to long-standing concerns about abuse and wide scope for error.

A company can claim Corporation Tax Relief when it has made a trading loss in an accounting period. While a company can’t always accurately predict whether it will make a loss in any given year, it is possible to reduce a company tax bill by offsetting this year’s loss against next year’s profit.

To do so a company must be assured of making a profit in the next year as they must continue to trade to benefit from this relief.

If you intend to carry forward trading loss in an accounting period that ends before 1 April 2017, you are only entitled to use the relief against profits of the same trade.

Businesses should also be aware that there is a restriction on the total amount of some types of carried forward loss that you can use against your profits.

If your company is part of a group and has carried forward trading losses made on or after 1 April 2017, other companies in the group may be able to use those losses thanks to group relief.

It may make sense to dispose of chargeable assets before the tax rate rises kick in. In essence, chargeable gains are how the Corporation Tax system deals with gains made from the disposal of assets and are effectively a form of capital gains for limited companies.

The total chargeable gains are calculated with your Corporation Tax return and then taxed along with your taxable profits, using your Corporation Tax rate.

Disposable assets are nominally anything which has been bought and has attracted a profit between the time it was bought and sold. Typically, this can be land buildings, fixtures and fittings or plant and machinery.

By deciding to dispose of any chargeable assets before the new rates come into force, you may be able to benefit from a lower rate of tax from the gains you make from their sale.

The R&D Tax Relief Scheme was introduced in the UK to support, reward and encourage companies undertaking research and development (R&D).

To achieve this, it offers tax relief that reduces your company’s Corporation Tax bill, or in some cases, will result in a payable tax credit.

Not every business or project may be eligible for this relief, but many might be eligible.

Small to medium-sized enterprises (SMEs) can claim R&D tax credits through the SME scheme. It is open to solvent registered companies with fewer than 500 staff, and a turnover of under €100 million or a balance sheet total of under €86 million.

Small or medium-sized enterprise (SME) R&D tax relief allows companies to either:

• Deduct an extra 86 per cent of their qualifying costs from their yearly profit, as well as the normal 100 per cent deduction, to make a total 186 per cent deduction; or
• Claim a tax credit if the company is loss-making, worth up to 10 per cent of the surrenderable loss (R&D intensive businesses continue to enjoy a higher rate of 14.5 per cent)

As long as the company is carrying out eligible R&D projects it should be eligible to make a claim. If you are unsure if a project is eligible, you should seek advice.

Companies with more than 500 staff or a turnover of over €100 million and a balance sheet totalling over €86 million are classed as large companies under the scheme and can claim a Research and Development Expenditure Credit (RDEC) instead. The RDEC is calculated at 20 per cent of your company’s qualifying R&D expenditure and is taxable.

Depending on if your company is in profit or loss making the credit may be used to discharge Corporation Tax liabilities or result in a one-off cash payment.