What is Capital Allowances Super Deduction?

Capital Allowances Super Deduction Explained

From April 1 2021 until March 21 2023, companies investing in qualifying assets will benefit from a 130% first-year capital tax allowance. This upfront capital allowances super deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.

Capital allowances super deduction is designed to stimulate business investment. It does so by increasing the incentive to invest in plant and machinery by offering higher rates of relief than were previously available.

  • a capital allowances 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

Capital investment must be in new and unused assets that qualify as main pool expenditure, subject to some specific exclusions. This will include expenditure such as solar panels, tractors, lorries and vans, fire alarm systems, security systems, carpets, computer equipment, and servers, office desks and furniture, refrigeration units, and electric vehicle charging points.

Apart from the enhanced expenditure, another positive aspect of the super-deduction is that there is no cap, unlike with Annual Investment Allowance (AIA). It is possible to bring forward the financial year-end of the company to benefit from the greater corporation tax savings earlier.

No capital allowances super deduction is allowed:

  • on used and second-hand assets
  • on cars
  • on building and structures (excluding integral features)
  • on expenditure excluded from long-life asset treatment by the ‘grandfathering provisions’
  • on expenditure on the provision of plant and machinery for leasing. Landlords, including property-owning companies which lease property to other members of the same group, will not be able to benefit from the super-deduction. Landlords can still claim the annual investment allowance or writing down allowances where appropriate

Super Deduction Example:

Previously:

  • Company spends £10m on eligible assets
  • Deducts £1m limit on AIA in year 1 (meaning £9m spend left)
  • Deducts £1.62m on WDAs at 18% (of remaining £9m)
  • Deductions therefore total £2.62m
  • Tax saving (at 20% rate) = 20% x £2.62m = £524k

Now with super-deduction:

  • Company spends £10m on eligible assets
  • Deducts £13m using super-deduction in year 1 (130% x £10m)
  • Tax saving (at 20% rate) = 20% x £13m = £2.6m

Difference of over £2 million in tax saving!

How TBAT can help

We support business in claiming through the Capital Allowances Scheme. Please contact us for further information.

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