Capital Allowance Super Deduction

Thinking of investing in new plant and machinery? Now might be the best time to do so..

In a bid to stimulate investment by businesses the government has announced that from 1st April 2021 the following initiative will be in place:

  • investment in qualifying plant and machinery would receive a 130% super-deduction capital allowance.
  • a 50% first-year allowance for qualifying special rate assets.

130% super-deduction

This applies to all new plant and machinery that ordinarily qualifies for the 18% main pool rate of writing down allowances including but not limited to:

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

Excluding second hand items, items held for leasing (which would be treated as main rate and written down by 18% as normal) and anything qualifying for the special rate pool (which would qualify for 50% first year allowance).

Unlike Annual investment allowance (AIA) which is capped at £1,000,000 the super-deduction has no cap.

Under the previous scheme £1,500,000 invested in capital expenditure, £1,000,000 would be covered by AIA and 18% WDA in the first year giving relief of £1,090,000.

At the corporation tax rate of 19%, reducing your corporation tax liability by £207,100.

Using the super-deduction if your organization invested £1,500,000 in capital expenditure this would be uplifted by an extra 30% giving you a relief of £1,950,000.

At the corporation tax rate of 19%, reducing your corporation tax liability by £370,500.

Saving an extra £163,400!!

50% first-year allowance

This applies to all new plant and machinery qualifying for the 6% special rate pool, including integral features in a building and long-life assets including but not limited to:

  • lifts, escalators and moving walkways
  • space and water heating systems
  • air-conditioning and air-cooling systems
  • electrical systems, including lighting systems
  • items with a long life (25+ years)
  • thermal insulation of buildings

Previously first year written down allowances were 6% per annum which has dramatically increased to 50% under the new scheme. Any available annual investment allowances can also be used on the investment in these special rate pool items up to £1,000,000 and there is also no cap on 50% first year allowances relief.

Losses?

As with all capital allowances, if the full deduction cannot be used by the business to set against its profits, a loss will be created which can be carried forward or back.

Who?

Unfortunately these benefits only apply to corporation tax paying businesses so do not include sole traders, partnerships, individuals or LLP’s.

When?

Investments qualify where the contract for the plant and machinery was entered into after 3 March 2021 and expenditure is incurred after 1 April 2021 and benefits are expected to run until March 2023.

AIA?

Is still available alongside the new super-deduction and 50% first year allowance for special rate items. This is beneficial because a second-hand asset does not qualify for the Super-deduction, but may still qualify for the annual investment allowance- this provides 100% relief for plant and machinery expenditure.

Disposals?

A key difference is that while the disposal value is arrived at in the same way when the asset is sold, the amount incurred on plant claims is either super-deduction or 50% first year allowance amount is automatically a balancing charge. If the disposal takes place before 1 April 2023, a special balancing charge calculation is needed for assets on which the super deduction was previously claimed: in simple terms, the disposal value for the year of sale is 1.3 times the sale proceeds of the asset.

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