What is the new Super-deduction?
As set out in the March 2021 budget, companies will be allowed to claim a new 130% capital allowance deduction on most new plant and machinery purchased between 1 April 2021 and 31 March 2023, and there is no limit as to how much can be claimed. Any contracts for purchase of equipment must have been entered into after 3 March 2021 and any expenditure must be incurred after 1 April 2021.
How does the super deduction work?
For any companies that invest in new qualifying plant and machinery they will be able to deduct 130% of the value spent on qualifying assets from their taxable profits, making this a generous allowance. For example, if a company spent £100,000 on new qualifying plant and machinery after 1 April 2021, £130,000 would be deducted from profits, meaning a corporation tax saving at 19% of £24,700 compared to £19,000 if AIA had been claimed or only £3,420 if writing down allowance was claimed.
If the same asset is sold within the 2 year window then any proceeds of sale will also be uplifted by 130%.
What assets qualify?
Any new assets that would usually be eligible for the 18% main rate pool capital allowances (such as vans and lorries, machinery, computer equipment, office equipment etc) will qualify for the super deduction.
What assets do not qualify?
As usual motor cars do not qualify for the new super deduction, along with assets purchased to lease out and second hand assets. Also plant and machinery that would usually go into the special rate 6% pool does not qualify for the 130% super deduction (but see SR deduction below)
For assets that would usually go into the 6% special rate asset pool the government has announced a new 50% special rate allowance, which works in a similar fashion to the above super deduction – this would apply to assets such as solar panels, electrical and lighting system, cold water systems and lifts etc. If available it will still be beneficial to claim 100% AIA first on these assets, rather than 50% SR deduction.
What can I do?
If you want more advice on buying assets and the new super deduction please get in touch and we can review your tax position to make the most tax efficient claims for you.
Senior Manager, Carlisle Office