Super Deduction

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December 2nd 2023
Tax Week 35
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Super Deduction

Claim 130 percent capital allowances until the end of the 2022/2023 tax year.

Starting from April 2021 up until the end of March 2023, companies can claim 130 percent first year tax relief via capital allowances on qualifying plant and machinery investments that would usually be added to the main rate pool.

Unfortunately sole traders (or any entity that does not pay corporation tax) are excluded from the super deduction and can continue to use the Annual Investment Allowance, which provide 100 percent tax relief. The AIA has been enhanced to a £1 million limit until December 31st 2021.

Alongside the super deduction, the first year allowance is increased to 50 percent. These are normally special rate pool assets and are normally at the 6 percent special rate allowance level.

Capital allowances allow a business to write off the cost of qualifying assets purchased for the business against taxable profits. This is an easier more straightforward method of accounting for company asset purchases than accounting for depreciation cost.

The new tax relief has been temporarily brought in to encourage companies to invest as the pandemic depressed/depresses economic growth. Using the super deduction a company effectively saves 25 pence off their tax bill for every pound they invest. A company can purchase equipment for £100,000 yet claim a deduction of £130,000 when calculating their taxable profits, saving the company around an additional £6,000 off their corporation tax bill over the annual investment rate.

It is hoped companies will bring forward investment plans to come into the period the super deduction is available and therefore help stimulate economic growth.

Exclusions apply to the purchase of cars and not new/previously-owned items. Companies adding to their truck or van fleets however can claim the super deduction on the purchase costs.

If the company is using finance, as long as payments are being made and the asset will be owned by the company eventually then the tax relief can be claimed too. So, finance lease is likely excluded but hire purchase assets can claim the total of all payments to be made.

Assets purchased that qualify for the super deduction are added to the main rate pool of investments. The same applies to items purchased under the 50 percent FYA, which are then added to the special rate pool.

When an asset is sold by a company the proceeds are added to profits on the sold value normally, however using the super deduction the value would be 130 percent etc.

Landlords can also use the super deduction now after changes were made to the legislation allowing 'background' assets. These are assets that might reasonably be installed, whose sole/main purpose is to make a building usable. Special rate assets that are 'integral assets' can receive 50 percent FYA like electrical, lighting, ventilation systems.

You can use our super deduction calculator to see how much the enhanced capital allowance saves you and compare with other asset pool types.

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