Super Tax Deduction for companies - a brief summary!

 

We’ve had a lot of questions from clients about the super deduction that the Government introduced last year to support businesses in the recovery from COVID-19 and enhance investment by UK companies. So we thought it would be helpful to provide a bite size guide to the new rules:

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

  •  a 130% super-deduction capital allowance on qualifying plant and machinery investments

  • a 50% first-year allowance for qualifying special rate assets

 The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

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

 Example

Say a company buys a piece of machinery for £500,000 in the year ended 31 March 2021. What are the tax consequences?

 £500,000 x 100% = £500,000

 £500,000 x 19% = £95,000 tax saving

 Say a company buys a piece of machinery for £500,000 in the year ended 31 March 2022. What are the tax consequences?

 £500,000 x 130% = £650,000

 £650,000 x 19% = £123,500 tax saving

 An overall tax saving from super deduction asset purchase of £28,500

 

If you have any questions on whether assets you are considering purchasing are eligible then don’t hesitate to call we would be happy to help you.

Pippa Hawkes