Businesses can claim a 100% first-year allowance (FYA) on the purchase of certain qualifying Plant & Machinery (P&M). The cash-flow benefit of accelerated tax relief is designed to encourage businesses to invest in capital items which help reduce their carbon footprint by being energy and water efficient. This is particularly beneficial to new businesses that usually encounter significant expenses during their first year of trading.

What qualifies for first-year allowances?

The list of qualifying items includes expenditure on new, unused electric vehicles and other cars with zero CO2 emissions.

The list also includes the following:

• plant and machinery for gas refuelling stations, for example, storage tanks, pumps
• gas, biogas and hydrogen refuelling equipment
• zero-emission goods vehicles
• equipment for electric vehicle charging points
• plant and machinery for use in a freeport tax site, only for companies.

The FYA is only available on the purchase of new cars; second-hand cars do not qualify for FYAs (but can claim writing down allowances). Please be aware that the make and model of the car must be on the government-approved list.

How to claim first-year allowances?

The use of the FYA allows businesses to set the full cost of qualifying P&M against their tax bills in the year of purchase. If you are a sole trader, this can be done via Self-Assessment, and if you are a company, this can be done on your Company Tax Return.

If claiming the full amount of FYA would create a loss, it is possible to claim less than the full 100% FYA and the balance by writing down allowances.

The Super Deduction Allowance

In March 2021, additional temporary capital allowances were introduced. The super deduction allowance and the 50% first-year allowance. Please note that they are only available for limited companies that pay corporation tax. Individuals, partnerships and LLPs cannot benefit from those two types of capital allowances.

If you would like more advice regarding first-year allowances, please contact us at info@gkaccountingservices.com or call us on 01269 508 081, where we will be more than happy to answer any of your questions.