Super-deduction

Announced in the 2021 Budget, the Super-deduction is a new 130% first-year capital allowance for qualifying plant and machinery assets; and a 50% first-year allowance for qualifying special rate assets.

With the right advice, you could cut your tax bill by up to 25p for every £1 you invest.

Super-deduction advice

The “super deduction” for capital expenditure that was announced in Mr Sunak’s spring budget looks like being a generous enhancement to the existing capital allowance deductions that companies can access.

Qualifying spend between 1 April 2021 and 31 March 2023 will attract either 50% or 130% deductions against a company’s corporation tax bill. The relief is available for spend incurred between these dates, where the contract has been entered into after 3 March 2021.

Qualifying additions to plant and machinery will benefit from the 130% deduction, while other qualifying additions such as fixtures and fittings will attract a 50% deduction. To give an idea of the extent to which the super deductions are an improvement on the previous position, prior to the budget announcement the comparable rates were just 18% and 6% per annum.

Moreover, the level of spend qualifying for the relief is uncapped, which again appears to be a generous addition to the existing rules.

Needless to say, as with all changes to the tax rules, the devil is in the detail. However, the HURST tax team can talk you through your specific situation and advise you on the best course of action.

Businesses will also want to look at the interaction of the new capital allowances rules with the other budget headline regarding loss carry backs. Where a company creates a loss through accessing the super-deductions, this loss can now be carried back against 3 years’ taxable profits to potentially trigger a repayment of corporation tax previously paid.

Super-deduction Example

Manufacturing Co Ltd invests in machinery costing £2.5m. The below example shows the tax deduction available on the spend if this is incurred on 31 March 2021 compared to incurring the same expenditure on 2 April 2021:

Date of Purchase

31 March 2021

1 April 2021

Cost

£2,500,000

£2,500,000

Plant and machinery allowances:

 

 

£1m @ 100%

£1,000,000

 

£1.5m @ 18%

   £270,000

 

£2.5m @130%

 

£3,250,000

Total allowances available

£1,270,000

£3,250,000

Corporation tax benefit @ 19%

   £241,300

   £617,500

Tax saving

 

   £376,200

Act now 

This is a temporary measure from 1 April 2021 until 31 March 2023 and proper planning and advice may be required to make the most of the scheme.

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