What is The Super Deduction?

The super deduction was announced on 3rd March 2021 as part of measures to help the UK economy recover from the impact of the Covid-19 pandemic. The allowance came into force on 1 April 2021 and will run until 31 March 2023.

The super deduction means that any investments businesses make in the main rate plant and machinery will qualify for a 130% capital allowance deduction. This will allow companies to cut their tax bill by up to 25p for every £1 they invest in qualifying machinery and equipment, for two years.

Businesses will also benefit from a 50% first-year allowance for qualifying special rate assets – this will be known as the SR allowance.

Giving qualifying equipment significantly higher deduction in the year of purchase than it would usually receive, the super deduction and first year SR allowance could reduce business’ corporation tax bills until 2023.

So if, for example, your business spends £100,000 on main rate equipment and you are eligible to claim a super deduction, your corporate tax deduction will be £130,000.

The SR allowances works in a similar way:

For example, if your business spends £1 million on assets that don’t qualify for the main pool, the SR allowance will give you a tax deduction of £500,000 to offset against your corporation tax profits. You’ll then get a tax deduction of 19% of this amount, so for this example, £95,000 off your tax bill.

You can claim a super deduction and special rate allowance if:

• Your company is subject to Corporation Tax
• You incurred the expenditure on or after 1 April 2021 but before 1 April 2023
• You did not buy the plant and machinery due to a contract you entered prior to 3 March 2021

New plant and machinery that would usually qualify for the 18% main pool rate of capital allowances will qualify for the super deduction allowance, including:

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

SR allowance is applicable to new plant and machinery that qualifies for the 6% special rate pool, including any integral building features and assets with a lifespan over 25 years, including:

• Solar panels
• Foundry equipment
• Water pipes within a building
• An electrical system within a building

There is no upper limit to the level of expenditure that super deduction can be applied to.

The £1 million annual investment allowance (AIA) has also been extended to the 31st March 2023, meaning it was available alongside SR allowance and super deduction. This meant that the limit of the annual investment allowance has temporarily been increased from £200,000 to £1,000,000 for qualifying expenditure on plant and machinery.

The AIA allows businesses to claim back 100% of the cost of qualifying plant and machinery in the year of acquisition. Any expenditure in excess of the limit goes into the main pool or special rate pool for tax purposes.

To find out more about how the super deduction relief can benefit your business, get in touch with our team of experts.