Capital Allowances and the new 130% super-deduction

As a result of measures announced at Budget 2021, businesses can now benefit from significant capital allowance measures: 

 

•The super-deduction offers 130% first-year relief on qualifying main rate plant and machinery investments from 1 April 2021 until 31 March 2023 for companies. 

 

• Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold, until 31 December 2021. 

 

 

• Since the Covid-19 pandemic, existing low levels of business investment have fallen, with a reduction of 11.6% between Q3 2019 and Q3 2020. 

 

• Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles. 

 

• The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward. 

 

 

The accounting profits are calculated using depreciation but for arriving to the taxable profits for corporation tax, a business is required to ‘add back’ any depreciation, but can instead deduct capital allowances. Plant and Machinery usually qualify for Annual Investment Allowance (AIA) so the full value of an item is deducted from your profits before tax in the year of purchase. 

 

Therefore instead 100% of the purchase the new super-deduction will allow for 130% deduction for capital allowances on qualifying plant and machinery investments. 

 

 

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

 

There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the super-deduction but are not limited to: 

 

•Computer equipment and servers 

 

•Office chairs and desks 

 

•Electric vehicle charge points 

 

•Refrigeration units 

 

•Compressors 

 

•Foundry equipment 

 

•Tractors, Lorries, vans 

 

There is not an exhaustive list of plant and machinery assets. 

 

 

For a new qualifying asset type, the effective relief for corporation tax will be 24.7% (compared to 19% main rate). 

 

 

There is no limit on the amount of deduction. 

 

The capital allowances arising will be deducted in computing a company’s tax profits as normal. If this results in an increase in the company’s tax losses, these can be relieved as usual. 

 

It needs to be noted that a company cannot claim AIA and a super-deduction on the same amount of qualifying expenditure, thus in most cases it would make sense to prioritise the super-deduction where possible. 

 

 

If the disposal takes place before 1 April 2023, a special balancing charge calculation is needed. The disposal receipts are multiplied by 1.3 for the capital allowance balancing charge to match the initial super-deduction. 

However, if the disposal occurs after 1 April 2023, the change of the corporation tax main rate will need to be considered as the main corporation tax rate will increase from 19% to 25%. 

 

For help and advice on the new super-deduction capital allowance claims please get in touch with your usual Chart Accountancy contact or email: [email protected]