Super Deduction – The New Enhanced Tax Relief of 130%

The Super Deduction – a new enhanced tax relief for companies introduced from 1 April 2021.

The Super Deduction introduced 1 April 2021 until the end of March 2023 enables companies to claim 130% tax relief (through capital allowance) on qualifying plant and machinery expenditure.

This is exciting news as it offers a significant tax saving for business and makes the UK’s capital allowance regime the most competitive in the The Organisation for Economic Co-operation and Development (OECD).

How does the Super Deduction work? An Example

A company purchases a new laptop to be used in the business at a cost of £1,000.

The purchase of laptops would be a purchase of qualifying plant and machinery. The company therefore decides to claim the Super Deduction. Spending £1,000 will mean the company can deduct £1,300 in computing its taxable profits.

Deducting the £1,300 from taxable profits will save the company up to 19% of that or £247 on its Corporation Tax bill.

What expenditure qualifies for the relief?

The following must all apply for the expenditure to qualify for the relief. It is also worth noting the Super Deduction applies to companies only, not sole traders, partnerships or Limited Liability Partnerships.

  1. The expenditure must be incurred between 1 April 2021 and March 2023.
  2. The expenditure must be on qualifying plant and machinery.
  3. The qualify plant and machinery must be bought new, second hand assets do not qualify.
  4. The qualify plant and machinery must be bought to be used in the business and not be held for leasing/rental to customers.

What is qualifying plant and machinery?

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances and the Super Deduction.

There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for the Super Deduction are:

  • 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 if I buy a second hand asset?

A second hand asset will not qualify for the enhanced Super Deduction tax relief of 130%, however it will potentially still qualify for the Annual Investment Allowance (AIA) which provides 100% relief for plant and machinery expenditure.

Also the good news is that you can obtain 100% AIA relief on expenditure up to £1 million until 31 December 2021.

If you have any questions on how the Super Deduction works and can benefit your company, please get in touch with one of the team who can help on 01228 904 904.

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