The Capital Allowances Super Deduction
The 2021 Budget in March announced a number of significant changes to the tax landscape, including the exciting capital allowances super deduction.
The super deduction aims to incentivise capital investment over a two-year period 2021 – 2023. It offers significant enhancement and/or acceleration of the allowances arising from qualifying plant & machinery spend.
Without this relief companies may have held off on significant capital investment until the corporation tax rate had increased to 25% in 2023, so relief could be obtained a higher tax rate, but the introduction of the super deduction means that the next 2 years are an excellent time to be undertaking capital projects.
Benefit
Without the Super Deduction:
- Main pool plant & machinery expenditure offered 18% writing down allowances (“WDAs”) on a reducing balance basis
- Special rate plant & machinery allowances offered 6% WDAs on a reducing balance basis
The Super Deduction offers:
- 130% for main pool plant & machinery expenditure
- 50% for special rate plant & machinery expenditure. The remaining 50% of the expenditure attracts the usual WDAs over time.
This represents a significant acceleration and enhancement of the relief arising from claiming capital allowances.
The below table sets out an example based on £100k spend in each qualifying pool.
|
Expenditure |
No Super Deduction |
With Super Deduction |
||
|
First year tax relief |
First year cash tax benefit at 19% |
First year tax relief |
First year cash tax benefit at 19% |
|
|
£100,000 Main Pool qualifying |
£18,000 |
£3,420 |
£130,000 |
£24,700 |
|
£100,000 Special Rate qualifying |
£6,000 |
£1,140 |
£50,000 |
£9,500 |
Who Can Claim?
The super deduction can be claimed by companies subject to corporation tax, who have incurred qualifying capital expenditure between 1 April 2021 and 31 March 2023. The contract for the plant and machinery must have been entered into after 3rd March 2021 (budget day).
Super deductions are not available on second hand assets or cars
Additional Considerations and Opportunities
Software Additions
Capital expenditure on software may qualify for the super deduction, where other entitlement requirements are met. If your company typically recognises software as an intangible fixed asset, it may be possible to elect (on an asset by asset basis) to treat new additions as a tangible asset to bring the expenditure within the scope of the super deduction.
Loss Making Companies
The budget update also introduced provisions that allow companies to carry back losses 3 years instead of 1, for a period that aligns with the availability of the super deduction. This means super deductions may provide relief that can be offset against profits arising up to 3 years prior, unlocking significant tax repayments.
Landlords and Assets Purchased for Leasing
Where assets are purchased for leasing, super deductions are only available on background plant & machinery. These are typically plant & machinery assets you would find in various types of buildings regardless of function including (but not limited to) electrical systems, ventilation, lifts or domestic water systems.
Subsequent Disposals
Where an asset subject to a super deduction claim is disposed of for proceeds, there may be some clawback of the relief arising. For this reason, it is important to track which assets were included in a super deduction claim, where a disposal for proceeds is expected.
Time Limits
The super deduction must be claimed in the tax computation for the year that the expenditure is incurred. This means you have 2 years from the end of the accounting period where the assets are acquired to make a claim.
Get in Touch
If you think you may be in position to take advantage of the new super deduction, or have any questions on the above, we’d be happy to hear from you:
Cal Byers - Head of capital allowances: cal@yes.tax
Natalia Pope - Director: natalia@yes.tax
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