You can now get deductions from profits of 130% on certain business purchases
What’s the background?
Since the impact of Covid – 19, both in the UK and globally, levels of business investment have fallen with UK recording a reduction of 11.6% between Quarter 3 in 2019 to Quarter 3 in 2020. Coupled with an already historically low level of business investment, this contributed in a major way to the UK’s productivity gap with competitors.
The Government decided to combat this by making capital allowances more generous to businesses seeking to invest and grow. They aimed to do this, amongst other incentives, by implementing the super deduction to promote economic growth.
As a result of these measures the UK capital allowance regime has become increasingly more competitive within the European sector.
What does the super deduction entail?
Essentially, the super deduction will allow UK Limited Companies to benefit from significant capital allowances measures by offering a 130% first year relief, on qualifying main rate plant and machinery investments until 31 March 2023. Unlike the Annual Investment Allowance (AIA), which has a limit of £1 million there is no cap on super deduction claims.
Additionally, a 50% first year allowance for special rate/long life assets has also been introduced until 31 March 2023 for companies.
An example in practice from HM Treasury
|A company spends £10m on qualifying assets
|The same company spends £10m on qualifying assets
|Deducts £200k using the AIA in year 1, leaving £9.8m
|Deducts £13m using the super deduction in year
|Deducts £1.764m using WDAs at 18%
|Receives a tax saving of
19% x £13m = £2.47m
|Deductions total £1.964m – and a tax saving of 19% x £1.964m = £373,160
What is qualifying plant and machinery?
Whilst not all businesses investments will qualify, most tangible capital assets that are used for business are plant and machinery for the purposes of capital allowance claims.
The Government does not publish an exhaustive list of plant and machinery assets.
Assets eligible for super deduction include all new plant and machinery, which would ordinarily qualify for the 18% main pool rate, or the 100% writing down allowances under AIA.
Special Rate allowance includes new plant and machinery which qualifies for special rate pool. This includes long-life assets and integral features in a building.
The types of assets which may qualify for either the super deduction or the 50% First Year Allowance can include the following (this is not an exhaustive list):
- Computer equipment
- Electric vehicle charge points
- Cranes, Drills, Ladders
- Office furniture
- Solar panels
- Tractors, lorries, vans (but not company cars)
- Foundry equipment
- Refrigeration units
If you have any queries on super deductions and how they might work for your business please call us on 0333 009 0801.