What is super deduction?
On 3 March 2021, the Chancellor announced a temporary change to tax relief which allows companies to claim enhanced capital allowances on qualifying plant and machinery assets. This new relief will allow companies to save up to 24.7p in corporation tax for every £1 of investment in plant and machinery in the year of expenditure.
With Sustainability on the agenda for many businesses now is a great time to assess how this tax relief can support your plans.
The tax relief is available on qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023. Any contracts entered into before 3 March 2021 will not be eligible for super deduction regardless of expenditures incurred post 31 March 2021. Whilst the existing rules regarding the timing of expenditures for capital allowances purposes have not changed, companies will need to consider the timing of expenditure carefully in order to determine whether they will qualify.
Benefits of this tax relief
- Net tax benefit of 24.7% - for assets that qualify for the super deduction, taxable profits can be reduced by more than the cost of the assets. This results in a net tax saving of 24.7% on the cost of the asset.
- Corporation tax repayment - due to the higher rates of relief, companies may end up with a loss for corporation tax purposes (as a result of higher capital allowances being claimed) which can be carried back (up to 3 years) generating a corporation tax repayment for earlier accounting periods.
- Lower corporation tax liabilities (current and future) – corporation tax liabilities will be lower as a result of higher capital allowances being claimed. If a taxable loss is generated, this could be carried forward and offset against future taxable profits (potentially saving tax at 25% in future years).
Who is eligible to claim the enhanced capital allowances?
Companies which are within the charge to UK Corporation Tax are eligible to claim the enhanced capital allowances on qualifying plant and machinery assets.
Partnerships and unincorporated businesses will not be eligible to claim the new FYA rates however they are still entitled to claim the annual investment allowance.
How we can help
If you have any questions on the Super Deduction tax relief and how this impacts your business, please do not hesitate to get in touch by completing the short contact form below.
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