Following the March 2021 budget, from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim generous capital allowances.
The 130% super-deduction and 50% first-year allowance are generous brand-new capital allowances for investments in plant and machinery assets. Both will allow investing companies to lower their corporation tax bills.
Capital allowances allow businesses to write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax deductible.
What is the super-deduction capital allowance?
The super-deduction offers 130% first-year relief on production plant and machinery investments until 31 March 2023 for companies. Under the super-deduction, for every pound a company invests, their taxes are cut by up to 25 pence.
Most tangible capital assets used in the course of a business are considered production plant and machinery for the purposes of claiming capital allowances. The types of assets which may qualify for the super-deduction are:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks,
- Electric vehicle charge points
- Refrigeration units
- Compressors
- Foundry equipment
Assets which qualify for the 50% FYA include, but are not limited to:
- Electrical & lighting systems
- Hot & cold water systems
- Air conditioning / circulation installations
- Lifts
- Solar shading
Here is a simple example of how the super deduction will work
A company spends £1m on qualifying plant and machinery and decides to claim the super-deduction. This will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits.
Deducting £1.3m from taxable profits could save the company up to 19% of that – or £247,000 – on its corporation tax bill.
An incentive for businesses
The super-deduction gives companies a strong incentive to make additional investments, and to bring planned investments forward.
Chancellor Rishi Sunak said: “With the lowest corporation tax in the G7, we need to do even more to encourage businesses to invest – for decades we have lagged behind our international peers. We need to unlock cash reserves so today I can announce the super-deduction. For the next two years when companies invest, they can reduce their tax bill with super deduction by 130% of the cost.
“We’ve never tried this before in our country – the Office for Budget Responsibility says it will boost investment by £20bn a year. It is worth £25bn for the two years it is in place, this is bold, unprecedented action.”
Eligibility and full technical guidance regarding the super deduction will be published in due course. If you need our advice get in touch.
Disclaimer
The information was correct at time of publishing but may now be out of date.
