Super Deduction
20th September 2022Businesses will now benefit from a new capital allowance ‘super-deduction’ and first year allowance. The hope is that these will provide companies with a stronger incentive to make qualifying investments and bring forward planned investments for future years.
What is the relief?
Companies will be able to claim a super-deduction against taxable profits for the cost of new plant and machinery purchased between 1 April 2021 and 31 March 2023. The deduction will be:
- 130% of the cost of qualifying plant and machinery which would ordinarily attract main rate capital allowances (ordinarily 18%).
- 50% of the cost of qualifying plant and machinery which would ordinarily attract special rate capital allowances (ordinarily 6%).
Capital allowances allow taxpayers to write off the cost of specific capital assets against taxable income. There are two main types of capital allowance – ‘Writing Down Allowance (WDA’s) for plant and machinery, and ‘Structures and Buildings Allowances (SBA).
The 130% super-deduction and 50% first year allowance are both generous and new capital allowances. Both will allow investing companies to lower their corporation tax bills.
Who is eligible for the relief?
Super-deduction is available to most companies. However, unincorporated businesses such as sole traders and partnerships will not be eligible for the relief. In a recent U-turn, the government announced that landlords will now be able to claim.
Are there any restrictions?
Assets that will not qualify are used or second hand plant and machinery, cars, structures and buildings. Plant and machinery bought after 1st April where contracts were entered into before 3rd March 2021, 100% relief can still be obtained on used plant and machinery through annual investment allowance (AIA).
What is Classed as Plant and Machinery?
Most tangible capital assets used in the course of a business are considered plant and machinery, for the purposes of claiming capital allowances. There is not an comprehensive list of plant and machinery, but the following list is a helpful guide.
- Refrigeration units
- Electric vehicle charge points
- Office chairs and desks
- Ladders, drills
- Tractors, lorries, vans
- Computer equipment
- Solar panels
Why has this come about?
The Government needed to act, as existing low levels of business investment had fallen with a reduction of 11.6%. This is also with the backdrop of the UK having a productivity gap with its peers. Much of this gap is of course due to the historically low levels of business investment.
The Government aims to encourage business investment and stimulate economic growth by introducing this scheme.
