It is good to know certain rules and basics about deductible expenditure and losses for corporation tax.

 

Trading Losses

Trading losses up to 5 years ago can be carried forward and subtracted from future tax bills for the company.

Non-trading losses – i.e. spend (excluding capital spend) the company has incurred in preparation for trading can also be carried forward if an election is made with HMRC for them to be treated as trading losses.

 

Capital allowances

The capital allowances (also known as plant and machinery allowances) are:

• annual investment allowance (AIA) - you can claim up to £1 million on most plant and machinery (excluding cars)

• 100% first-year allowances - in addition to AIA, for electric cars and other qualifying machinery

• the super-deduction or 50% special rate first-year allowance - companies only can claim these for certain plant and machinery you buy from 1 April 2021 up to and including 31 March 2023

• full expensing and 50% first-year allowance - companies only can claim these on qualifying plant and machinery investments from 1 April 2023

• 40% first year allowance - you can claim this for qualifying plant and machinery purchased after 1 January 2026

• writing down allowances - you can claim these if your plant and machinery does not qualify for another allowance, or if there’s value remaining after claiming the maximum amount of another allowance (18% up to 1st April 2026, 14% after that)

• structural building allowance

If an item qualifies for more than one capital allowance, you can choose which one to use.

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Research and development relief

The merged R&D expenditure credit scheme - 20% tax credit

Enhanced R&D intensive support  - loss-making R&D intensive small & medium companies can deduct 186% of the R&D costs for tax purposes plus 14.5% tax credit on qualifying loss

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The criteria for claiming R&D relief are very strict. Your company or organisation can only claim for R&D Relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability.