Super-deduction

It was announced during the Budget, in March 2021, that a new temporary super-deduction scheme would be available for incorporated companies from 1st April 2021 to 31st March 2023.

The scheme was introduced as an incentive for companies to make additional investments, and to bring planned investments forward.

The scheme allows businesses to claim 130% capital allowances on qualifying plant and machinery purchases during the two-year window.

Currently the corporation tax rate is 19% and is set to rise to 25% from 1st April 2022, meaning that companies may reduce their tax bills by up to 25% for every £1 of investment, depending on their profits and the date of investment.

The below example shows the cash flow benefit of the super-deduction, based on a notional £50,000 of qualifying spend.

  • £50,000 spend, with super-deduction – £65,000 – year one tax relief, £12,350.
  • £50,000 spend, with super-deduction – £65,000 – year two tax relief, up to £16,250 dependent on annual profits.

 Most tangible capital assets used for the purpose of a business are considered plant and machinery for the purpose of capital allowances.

Although there is no defined list of qualifying assets, the kind of assets which may qualify for the super-deduction include:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, and vans
  • Ladders, drills, and cranes
  • Office desks and chairs
  • Electric vehicle charging points

Timing of the asset purchase is key to maximising the relief available, assets must be purchased within the two-year period and the contract relating to the asset must have been entered into after 3rd March 2021.

Another factor to consider, relates to the timing of a company’s accounting periods. For accounting periods straddling 31st March 2023, a reduced super-deduction rate of between 100% and 130% will be available, which depends on the number of days in the period that fall before 1st April 2023. This may mean that a company may wish to accelerate any capital investment towards the end of the scheme to ensure the allowance is claimable in their year-end accounts.

For more information on the super-deduction, call us on 01480 596636.

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