The Super Deduction
Mark Moore, Tax Partner, explains the new Super Deduction…
What is the Super Deduction?
In the budget earlier this month, the government announced a new Capital Allowance ‘The Super Deduction’ to promote business investment and productivity. A Capital Allowance is an allowance which can be claimed on capital equipment employed within your business and provides a direct tax relief based on the original cost or an annual allowance based on depreciated cost.
Since the Covid-19 pandemic, already low levels of business investment have fallen further and so the super deduction aims to provide a more generous tax break to stimulate business growth. This will obviously be countered by the proposed increase in Corporation tax rates from 2023, but in the meantime this estimated £25bn tax break is designed to be a strong incentive to make additional investments and bring already planned investments forward and will provide up to 25p off company tax bills for every £1 of qualifying spend.
How does it work?
For qualifying main rate plant and machinery investments from 1 April 2021 until 31 March 2023, a 130% first year relief can be claimed.
This will be a super deduction of 130% of the expenditure incurred on the purchase of most business equipment, i.e. on a spend of £100K, the corporate tax deduction will be £130K giving direct corporation tax relief at 19% on £130K which is £24,700.
Usually, this expenditure would fall within the Annual Investment Allowance which would provide direct tax relief of £19K otherwise the relief would be restricted to a maximum of 18% of the depreciated cost each year.
There is also a reduced “Super Deduction” of 50% for assets that are classed as “special rate” for Capital Allowances. These are generally long life assets and for which currently an annual allowance of 6% only is usually available.
What kind of equipment is eligible?
Most capital assets used in the course of a business are considered eligible for claiming capital allowances. The following list includes some but not all the types of assets that qualify for the super-deduction.
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks
- Electric vehicle charge points
- Refrigeration units
- Foundry equipment
You can find see the full Gov.uk factsheet and find out more about the eligibility of different types of investments for different types of capital allowances.
Can I use the super-deduction to buy used equipment?
No, unlike the Annual Investment Allowance, the super-deduction relief excludes the purchase of used equipment.
Eligibility – Who can claim?
Companies within the charge to Corporation Tax who invest in plant and machinery on or after 1 April 2021. The Super Deduction is unfortunately not available to sole traders, partnerships or LLPs. However, these businesses can still claim the Annual Investment Allowance which provides 100% relief on business capital investment of up to £1M until 31 December 2021.
If you would like more information on the Super Deduction, what can and cannot qualify and timing of any claims then please contact our tax Partner, Mark Moore, at firstname.lastname@example.org