From 1st April 2021 to 31st March 2023, there is a new 130% first-year capital allowance for plant and machinery assets, and a 50% first-year allowance for special rate (SR) assets.
Businesses investing in qualifying assets are able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
The super deduction allowances are only available to companies subject to corporation tax, and are not available to individuals, partnerships or LLPs.
Since the pandemic, the government has offered support for businesses to help them get back on track and grow, especially during the current economic climate.
Unsurprisingly, investment has fallen, with a 11.6% reduction between Q3 2019 and Q3 2020. Historically, we have some of the lowest levels of business investment which can slow productivity growth, which the government wants to tackle head on.
The super-deduction allows businesses to cut their tax bill by up to 25p for every £1 that they invest. This allows companies to invest in productivity-enhancing plant and machinery assets to help them grow.
The allowances apply for capital investments made between 1 April 2021 and 31 March 2023, and are available alongside the Annual Investment Allowance (AIA) which permits businesses a 100% relief for costs of qualifying plant and machinery in the tax year of purchase.
What Are Capital Allowances?
Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. When calculating their taxable profits, businesses deduct their allowances.
There are two types of allowances – Writing Down Allowances (WDAs) for plant & machinery, and Structures and Buildings Allowances (SBA) which cover the construction and renovation of non-residential structures and buildings.
It is worth noting that there is no limit on the amount of capital investment that can qualify for the super-deduction.
What Does Not Count as Capital Allowances?
Capital investment must be in new and unused assets that qualify as main pool expenditure. Cars, solar panels, security systems, computer equipment and leased assets are some examples of expenditure that does not count towards these allowances.
How to Calculate Super-Deduction
The rate of super-deduction depends on if the accounting period straddles 1st April 2023, where the rate would be allocated based on days falling prior to this. As there is no limit on super-deduction, you can bring forward the financial year end to benefit from better corporation tax savings earlier.
How can we help?
At James and Uzzell, we pride ourselves on providing an honest and trustworthy service. If you need help navigating super-deduction tax, our friendly team would be happy to discuss your requirements and help you. Please give us a call on (01792) 799 100 or send an email to firstname.lastname@example.org.