Super Deduction Tax Breaks

What is it and how does it work?

The super deduction £25 billion tax break, announced by Chancellor Rishi Sunak as “bold and unprecedented”, is intended to accelerate investments by providing tax relief of 25p, of the company corporation tax bill, for every £1 of eligible spending on plant and machinery. Mr Sunak believes support will not only bring forward business spending for two years, but will “increase the amount of investment”

For two years, from April 2021 onwards, companies’ investments in plant and machinery will qualify for 130% capital allowances deduction. For example, a qualifying spend of £100,000 would actually see £130,000 deducted from profits, giving corporation tax relief of £24,700 at 19%. However, without the super deduction, the company would only save £19,000, or 19% of the cost per annum.

Conditions
  • The super deduction is only targeted to limited companies, not unincorporated businesses. They would be able to utilise the extended Annual Investment Allowance threshold of £1million for capital investments until 31 December 2021
  • Plant and machinery must be new, not used or second hand.
  • Assets purchased with the intention of leasing to third parties do not qualify for the super deduction or the special rate first year allowance
Type of qualifying assets

The kind of assets that qualify for the super-deduction include but are not limited to:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment
Record Keeping

Disposal of assets can complicate taxation matters. Disposals are usually treated as taxable balancing charges so companies which dispose of assets before the end of the two years the scheme is in place, could find that it costs them more in taxes than what the super deduction saved. It is imperative full records are kept of assets along with details of claims made.

Capital allowances table

Asset class

CA claim

Asset type

CA rate

Effective relief of cost in year 1 for company

Main plant and machinery

Super deduction

New

130%

24.7%

AIA (max £1m)

All

100%

19%

Main pool

Second hand

18%

3.42%

Special Rate (generally Long Life assets or integral features)

 

AIA (max £1m)

All

100%

19%

SR deduction

New

50%

9.5%

Pool

Second hand

6%

1.14%

 

 

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