Budget October 21 – Super deduction on capital allowances

With a somewhat unexciting October 2021 Budget, the super deduction announced in the March 2021 Budget remains a potential game changer for many Dafferns corporate clients.

If you are thinking of acquiring a capital asset in your business, you may benefit from additional tax relief.

From 1 April 2021 to 31 March 2023, companies investing in qualifying new plant and machinery will benefit from increased capital allowances which will reduce your corporation tax bill.

Under this measure a company will be allowed to claim:

  • A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
  • A first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances. This relief is not available for unincorporated businesses
  • Extension of the first-year allowances for business cars from April 2021 for zero-emission cars, zero- emission goods vehicles and equipment for gas refuelling stations by four years 

Please note the super-deduction is only available for companies and not sole traders or partnerships. Also, a qualifying asset must be new and not second hand.

How much can you save using super-deduction?

As an example, say you bought a piece of equipment for £30,000 then this will be uplifted by 130% for capital allowances to £39,000. The deduction against corporation tax will be £7,410.

Without the super-deduction, the standard allowance would only be £5,700 so you would make a saving of £1,710 in corporation tax.