What is the new super-deduction?
Posted on 7th May 2021
If your company is planning to invest in plant and machinery assets between the 1 April 2021 until the 31 March 2023, this new super-deduction tax break could apply to you.
The UK Government are offering businesses 130% first-year relief against taxable profits. The government hope to encourage firms to invest in assets that will help them to increase productivity, and this in turn should promote economic growth.
This unique support for UK businesses is intended to spur investment after so many have been struggling to trade during the lockdowns, brought about by the COVID19 pandemic.
With productivity growth in a slowdown since 2008, the UK’s productivity gap is attributed to our historically low levels of business investment compared to our competitors.
Research shows that since the onset of the pandemic, this already low level of investment has fallen even further. Between Q3 2019 and Q3 202, there has been a reduction in investment of 11.6%.
Super-deduction – how it works
The new super-deduction tax relief is classed as a Capital Allowance. A Capital Allowance applies when taxpayers are allowed to write-off their costs of capital assets against their taxable income.
For example, if you spend £10,000, the deduction against taxable profits will be £13,000 The Corporation Tax relief at 19% will give a saving of £2,470.
What’s on offer
There are four new Capital Allowances measures that UK businesses can now benefit from:
• The super-deduction – which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023.
• The 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023.
• Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold, until 31 December 2021.
• Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+) and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026.
What is “qualifying” plant and machinery?
According to the HMRC’s super-deduction fact sheet the following plant and machinery qualify:
- Ladders, drills and cranes
- Tractors, Lorries and vans
- Foundry equipment
- Compressors
- Electric vehicle charging points
- Solar panels
- Refrigeration units
- Computer equipment and servers
- Office chairs and desks
Please note this is not an exhaustive list and you should check with HMRC if in doubt that your desired assets qualify for the super-deduction tax relief.
Things to be mindful of
The 130% tax break does not apply to leased equipment, because it only applies to the person who incurs the expense of purchasing the equipment. Also, used equipment will not qualify for the super-deduction.
Unfortunately, there is still some confusion around how the super-deduction will be applied if you use asset finance to purchase any qualifying equipment. There are ‘additional conditions’ that will have to be met; these include:
- that you are paying a periodical sum and in return plant and machinery assets are “bailed” (hired) to you
- that eventually you can end up owning those assets (such as by exercising an option to purchase or paying a fee)
- that the person who hires/receives the goods is the one incurring the expenditure (i.e. paying for the contract). This makes sure that the benefit of the deduction goes to the small business rather than the lender.
For more information on the super-tax visit GOV.UK or visit our website for more resources here along with a new fact sheet here.
To help you understand these new capital allowances and to see what other tax deductions your business could benefit from, contact us to see if we’re the accountancy firm for you.
Written by:
Nicola J Sorrell -
Effective Accounting
Founder | Xero Champion | IR35 Expert
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