Super Deduction Update

The New ‘Super-Deduction’ – Care is Needed?

As highlighted in our post on the Budget one of the big announcements from the 2021 Budget was the introduction of a new ‘super-deduction’ from 1 April 2021, operating on expenditure incurred from its introduction until the end of March 2023.

What does this mean?

The rules mean that for qualifying expenditure on plant and machinery (as defined by the usual Capital Allowances rules) companies can claim 130% capital allowances on qualifying investments.  This means they get a deduction of more than the actual cost of the assets.  For example, an asset costing £100 could benefit from a deduction against profits of £130 and therefore reduces the Corporation Tax due by more than would normally be the case.

Whilst this sounds generous there are some things to bear in mind:

  • The new rules give effective relief at 24.7% of expenditure until March 2023.  From March 2023 the Corporation Tax rate is then due to rise to 25% meaning that expenditure after that point may effectively get the same amount of relief in real-terms.
  • Assets that have benefited from the super-deduction must be kept in a separate Capital Allowances pool and are not added to the main pool.  When they are sold, the proceeds are also grossed up by 130% in determining balancing charges.
  • This could mean less relief for assets purchased prior to March 2023 but disposed of once the main CT rises where they retain a lot of value.

50% first year allowance

Also announced as part of these rules is a new 50% first-year allowance for special rate assets until March 2023.  This will only be beneficial where the AIA was not available on the assets but would speed up relief on such assets that would usually only receive 8% writing-down allowances.  Again, timing will need to be considered due to the proposed rise in CT rates because an upfront larger deduction while rates are lower may not be beneficial long-term.

Let the professionals handle it

If your business is thinking of making an investment in equipment in the next few years, Eaves and Co would be happy to assist, taking into consideration your specific circumstances and advising on the most beneficial route forward. Our team of specialist tax advisers work with individuals, professionals and businesses for more information on how we can assist you with you, please contact a member of our team and arrange a consultation: Contact us