The NEW Super Deduction

Budget, Corporation Tax, Limited Company,

In Spring 2021, a new ‘Super Deduction’ was announced. It’s goal was to encourage companies to invest in growth and to help kick-start the economy.

What is a Super Deduction?

The Super Deduction allows companies to claim 130% first year allowances for investment spend incurred on ‘main pool’ items of plant and machinery acquired between 1st April 2021 and 31st March 2023.

This includes manufacturing equipment, machines and computers, as well as main pool plant and machinery that may be fixtures in properties. It can also include a proportion of construction expenditure on new or refurbished buildings.

Don’t miss the NEW 50% Deduction!

In all of the publicity around the 130% Super Deduction, the smaller, 50% option hasn’t received as much attention. This is for expenditure incurred on special rate pool items of plant or machinery, which includes internal features, solar panels and thermal insulation.

Other Conditions…

  • The 130% super deduction and 50% FYA are only available for plant and machinery that is new and unused.
  • Neither new allowance applies to assets purchased second-hand.
  • Relief is time apportioned for accounting periods that straddle 1st April 2021 and 31st March 2023.

BEWARE! That all sounds great but…

…there are some caveats and omissions that might make the super deduction less attractive than it may first have appeared. 

  • Both deductions are restricted to Limited Companies only.
  • Both reliefs are available ONLY to contracts entered into AFTER 3rd March 2021, so if anything was agreed before that but delayed, they will NOT qualify.
  • Landlords investing in the construction of new  property or the refurbishment of existing premises are not eligible.
  • Long-life assets and cars are excluded. (Vehicles not deemed to be cars, so vans, motorbikes etc used for trading purposes are included).
  • The allowances are only available until 23rd March 2023, when Corporation Tax applies at 19%. The ability to offset these allowances against what may be much smaller profits in that post-COVID period may not be as beneficial as may first appear. However, claiming the first year increased capital allowances may lead to a tax loss which can be carried forward and used to reduce future tax liabilities at higher rates.

As with any company tax strategy, our advice would be to give any significant investment careful consideration, and to make sure that you seek professional advice before proceeding. If you’re a client of ours, please get in touch so we can chat through your plans and make sure they will have the consequences you are hoping for!

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