The Super Deduction

by Robin Beadle

The Capital Allowance “Super Deduction” was introduced for Limited Companies from 1 April 2021 and is available until 31 March 2023.  It allows companies investing in qualifying Plant & Machinery to be able to claim either (up to) a 130% super-deduction capital allowance or a 50% first-year allowance for special rate assets.

It is not, however, an additional tax relief but instead an acceleration of a rate of relief that is due to be in place next year, anyway.

The relief applies to assets purchased new, not second-hand, and the super-deduction will save companies 25p for every £1 invested (compared to the current rate of 19p per £1).  Assets include any general plant and machinery such as vans (not most cars), equipment or tooling.  The 50% First Year Allowance applies to plant with an expected life exceeding 25 years (e.g.: integral features) which would normally be listed in the separate 6% pool of assets.

You should ensure that you keep a record of what you have purchased and when.  If you dispose of any assets on which you have claimed the Super Deduction before 31 March 2023, a balancing charge is generated to claw back the super deduction granted earlier.  This will be between 1.0 and 1.3 times the actual disposal value (depending on your accounting period).

For disposals of assets after 31 March 2023 where you have claimed the Super Deduction, you are not required to apply the multiplier of (up to) 1.3.  Whilst this initially implies that a delayed disposal would attract greater tax relief overall, as it is currently planned that the Corporation Tax rate will rise from 19% to 25% from next April, all balancing charges will be taxed at 25% thus negating any theoretical advantage.

Instead, the Super Deduction reminds us that if you want to dispose of any other assets on which there would be a balancing charge, consider doing this before 31 March 2023 as the balancing charge would be taxed at only 19% instead of the post April 2023 rate of 25%.

(The actual relief and rates are dependent on your accounting period.  Check with your accountant as to whether an asset qualifies for relief.)

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Robin beadle

Robin Beadle

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