The March 2021 Budget saw the introduction of additional tax capital allowances with the announcement of a new “Super Deduction” (which gives 130% relief) to encourage capital investment by companies over the period to 31st March 2023.
The Super Deduction will allow a company to claim £130 of tax allowance on every £100 spent on qualifying plant and machinery expenditure with no upper limit on the amount of claim over the next two years.
For a company paying corporation tax at the rate of 19% this will mean that each £100 spent will achieve £25 tax reduction for the relevant tax year.
Unfortunately, this allowance is only available to companies and for the vast majority of farming businesses conducted either through a partnership or as a sole trade, this relief is not available, although these businesses will still be able to take advantage of the Annual Investment Allowance (AIA) that gives 100% tax relief on up to £1m of expenditure, but only to 31 December 2021 when the allowance is scheduled to reduce to £200,000.
The Super Deduction is a welcome tax relief and will allow enhanced tax relief on expenditure such as tractors, combines, cultivation equipment, lorries, commercial vehicles, certain grain store expenditure, computer equipment and many other areas of expenditure.
As would be expected there are pitfalls to consider when making a claim for the Super Deduction. The first is that it only relates to expenditure on new unused equipment, so second-hand kit does not qualify, although this expenditure can still benefit from AIA. It is also not available for expenditure where the purchase contract was entered into before 3rd March 2021 and although it is available for certain expenditure on hire purchase it is not available where equipment is acquired under a leasing arrangement. Finally, one of the biggest downsides is that when an asset that has been subject to a Super Deduction claim is subsequently disposed, 130% of the disposal proceeds are subjected to tax, with corporation tax rates expected to increase in the coming years the tax costs on disposal could be significant with of 130% of the proceeds potentially being taxed at a higher tax rate.