The Super-Deduction

For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments for the first year, instead of the normal 100% Annual Investment Allowance (AIA).

For every pound a company invests, their taxes are cut by up to 25p.

Examples

• Under the AIA, the tax relief on an asset purchased for £10,000 would be £1,900 (19%).
• Under the Super Deduction, the Tax relief would be £2,470 (24.7%).

What are capital allowances?

Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax-deductible. Businesses deduct capital allowances when computing their taxable profits.

The two main types of capital allowances are:

• Writing Down Allowances (WDAs) for plant & machinery – covering most capital equipment used in a trade; and
• Structures and Buildings Allowances (SBA) – covering the construction and renovation of non-residential structures and buildings.

What is plant and machinery?

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

• 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

The Super-Deduction is not applicable for:

• Used or second-hand assets
• Cars or buildings

For more details check out this government factsheet.

This is a good measure to spark investment by businesses, but with the future increase in Corporation Tax, future investments and use of the allowance should be reviewed.