The new 130% “Super-deduction” means that companies investing in qualifying new plant and machinery assets between 1st of April 2021 and the 31st of March 2023, will be 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 scheme enables companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

The government has offered huge support to businesses during the Covid pandemic, as the related economic shortages and uncertainty have chilled business investment. This super-deduction has been developed to encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow.

Since the Covid-19 pandemic, existing low levels of business investment have fallen, with a reduction of 11.6% between Q3 2019 and Q3 2020, meaning companies are no longer willing to or simply can’t invest in assets that will help their company grow. They are hoping that this super deduction scheme will encourage businesses to stimulate investment. As a result, these measures can promote economic growth and counter business cycles.

This should improve the country’s productivity levels over the next two years. 

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.

The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to :

• Computer equipment and servers
• Solar panels
• Tractors, lorries, vans
• Ladders, drills, cranes
• Office chairs and desks 
• Refrigeration units
• Electrical vehicle charger points 
• Compressors

Please bear in mind that certain expenditures are excluded, for example, the acquisition of company cars, as well as the purchase of second-hand plant and machinery. 

Your business is eligible if you spend money on any of the assets between April 1st 2021 and March 31st 2023.

The following general conditions must all be met for expenditure to qualify for the super-deduction or the SR allowance:

• it is incurred on or after 1 April 2021 but before 1 April 2023 
• it is incurred by a company within the charge to corporation tax
• the plant or machinery is unused and not second-hand

The super-deduction and the SR allowance don’t apply to partnerships or individuals. You need to have a company to get these valuable reliefs.

How does it work? Let’s look at the 130% first-year relief on qualifying main rate plant and machinery investments made during this period. Here’s an example:

Let’s say your business spends £100,000 on main rate equipment and you’re eligible to claim the super-deduction tax break on this expenditure. 

When you calculate your taxable profits, your corporate tax deduction will be £130,000 (i.e. 130% of your initial investment). Deducting £130,000 from your taxable profits will save your business up to 19% of that; 19% of £130,000 is £24,700. And that’s how much corporation tax you save if you qualify for super-deduction.

From an accounting perspective, we would advise businesses looking to maximise their tax savings to plan well ahead.