The 130% 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 their 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.

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.  This will be uplifted by 130% for capital allowances, meaning a reduction of taxable profits of £39,000.  The corporation tax bill at 19% will thus be reduced by £7,410.

Without the super-deduction, annual investment allowances would currently allow 100% of the capital cost to be written off against taxable profits. This would reduce the corporation tax charge by £5,700 so the super-deduction gives a saving of £1,710 in corporation tax.

What constitutes plant and machinery for the 130% super-deduction?

Most tangible capital assets used in the course of a business are considered to be plant and machinery for the purposes of claiming capital allowances, including the super-deduction. Some assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:

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

What about pick-up trucks?

The super-deduction of 130% apples to tractors, lorries and vans, including light commercial vehicles. A pick-up truck is regarded as a light commercial vehicle as long as it doesn’t fall into the definition of a car, i.e. it needs to have a payload of at least a tonne (1,000kg).

  • All second-hand equipment is excluded, so the vehicle must be purchased new between 1 April 2021 and 31 March 2023
  • Also, the super-deduction is only available to limited companies, so not to sole traders or partnerships
  • And the asset must be purchased in a way that allows the claiming of capital allowances – so hire purchase is OK, but leased assets do not qualify.

Please get in touch to confirm that the asset you are buying qualifies for the Super-Deduction