What is the new Capital Allowances Super-Deduction?

4 May 2021 David Robinson View all News

One of the biggest talking points from this year’s Budget in March was the introduction of the new Capital Allowances Super-Deduction.

What is the super-deduction?

The 130% super-deduction capital allowance will provide a tax saving of 25p for every £1 spent on new qualifying plant and machinery investments, and ties in with the government’s Covid-19 policy to stimulate business investment and get the county running again.

When is the super-deduction available?

The super-deduction will only be available to companies on qualifying expenditure between 1 April 2021 until 31 March 2023. Sole traders and partnerships will therefore not be eligible to claim.

Is there a super-deduction cap?

Unlike the Annual Investment Allowance (AIA), which is capped currently at £1m per annum, the super-deduction is uncapped.

Super-deduction example

  Qualifying P&M acquired in Y/E March 2022 (Super deduction claimed) Qualifying P&M acquired in Y/E March 2021 (AIA claimed under old rules)
Cost of asset £100,000 £100,000
Allowance claimed £130,000 £100,000
Tax saving (at 19%) £24,700 £19,000
Additional tax saving £5,700 -

As you can see above, under the new rules, for every £100,000 spent on qualifying plant and machinery a company stands to save an additional £5,700 in tax.                             

What expenditure qualifies for super-deduction?

Potential expenditure that would qualify for the relief at 130% would be assets that fall into the main pool for capital allowances, which includes:

  • Plant & Machinery
  • IT and office equipment
  • Commercial vehicles

However, certain expenditure such as cars are specially excluded from the 130% super deduction regime.

Super-deduction versus AIA

Where expenditure would typically fall into the special rate pool, including air conditioning, electricals, water systems etc, these items can only qualify for relief at 50%. In these instances, it would be more beneficial to claim the AIA should a company have this available. If not, it is certainly worthwhile claiming the super-deduction at 50% as opposed to Writing Down Allowances (WDA’s) which would only provide relief at 6% per annum.

Additional conditions for super-deduction

There are a few caveats to the relief such as it only being available on expenditure where the taxpayer has not entered into a contract to purchase before 31 March 2021, and it must be on new items (not used). Therefore, expert advice should be sought before planning and claiming the relief.

Speak to Shorts for super-deduction advice

Tax team_result

Shorts team of tax specialists are at the cutting edge of all things tax, and the new super-deduction is no exception. If you have queries about the new policy, or would like assistance in reviewing your current investment plans, Shorts are happy to advise on changes to implement a long term tax efficient strategy. Contact our team today!

 

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