Farming talk: Capital allowances changing

The Annual Investment Allowance (AIA) allows businesses to deduct qualifying expenditure up to the available limit when calculating profits, providing immediate tax relief for the expenditure. The AIA is available to unincorporated businesses and to companies.

The temporary limit of £1 million, which has applied since January 1 2019, comes to an end on March 31 2023. From April 1 2023, it is due to revert to its permanent level of £200,000. Transitional rules apply where accounting periods span March 31 2023, and these can operate harshly.

Super-deduction

Companies can claim a super-deduction for most expenditure that qualifies for main rate capital allowances where that expenditure is incurred between April 1, 2021, and March 31, 2023. The main exclusion is expenditure on cars. The super-deduction provides an enhanced deduction of 130 per cent of the expenditure.

If you run your business as a company, time is limited to take advantage of the super-deduction (which provides a better rate of relief than the AIA).

50 per cent first-year allowance

Companies can also benefit from a 50 per cent first-year allowance for qualifying expenditure incurred in the period from April 1, 2021, to March 31, 2023, which would otherwise qualify for special rate writing down allowances of six per cent. The allowance is beneficial where the AIA limit has been used up.

If you are planning significant capital expenditure, we can help ensure that you optimise the reliefs and don’t fall foul of the transitional rules for AIA and take advantage of the time-limited reliefs.

Roy Jackson is rural partner at WR Partners