How the 130% Super-deduction on Plant and Machinery can Support Businesses.

Backhoe working in road construction site, with mountains and sky background.

The Government have announced a new ‘super-deduction’ for Capital Allowances in the hopes of boosting business investment after the damaging economical effects of the Global Pandemic.

We have outlined exactly what a super-deduction is and how businesses can benefit from the scheme to help them increase revenue.

What is a Super-deduction?

The super-deduction is a £25bn tax break announced in the new Budget. Specifically, for two years from April 2021, companies’ investments in plant and machinery will qualify for a 130% capital allowance deduction. As a result, under the super-deduction, for every pound a company invests, their taxes are cut by up to 25p.

Furthermore, this tax break makes the UK’s capital allowance regime a lot more competitive globally. Altogether, it lifts our plant and machinery allowances from 30th to 1st in the OECD.

This will mean that on a spend of £100,000, the corporation tax deduction will be £130,000, giving corporation tax relief at 19 per cent on £130,000, which is £24,700.

What is Included in the Super-deduction?

Backhoe working in road construction site, with mountains and sky background.

Backhoe working in road construction site, with mountains and sky background.

The scheme includes numerous assets which can benefit a large number of businesses. As a result, a complete list has not been developed, but there has been a list of example assets.

The following may qualify for either the super-deduction or the 50% FYA include, but are not limited to:

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

Can I use the super-deduction to buy used equipment?

Unfortunately, no, you cannot. According to Andrew Frost of Genesis Asset Finance, a big change from the parallel Annual Investment Allowance is the exclusion of used equipment from the super-deduction.

What are the new Capital Allowances offers?

As part of the new budget announcement, businesses will be able to benefit from four significant capital allowances.

  • The super-deduction – which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023 for companies.
  • The 50% first-year allowance (FYA) for special rates (including long life) assets until 31 March 2023 for companies.
  • Until 31st December 2021, Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold.
  • Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+) and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026.

Eligibility criteria are outlined in the published tax information and impacts note, found here.

Interested in finding out more about the super-deduction?

If you are interested in finding out more about the super-deduction, get in touch with our expert team today.