The Budget brought welcome news for companies looking to make significant capital investment over the next two years with the announcement of a new super-deduction of 130% for qualifying capital expenditure.
How Does Super-Deduction Tax Relief Work?
Capital allowance schemes let taxpayers write off the cost of certain capital assets against taxable income. This means that businesses can deduct the cost of qualifying plant and machinery from their taxable profit. The super-deduction tax break allows companies to write-off up to 130% of the cost of eligible equipment against their taxable profit.
For example, this is how the super-deduction tax relief would work for a company incurring £1million of qualifying machinery and plant expenditure:
· Spending £1million on eligible investments means the company is entitled to deduct £1.3million (130% of the initial investment cost) from its taxable profit.
· As corporation tax is 19%, the company’s corporation tax bill will be reduced by 19% of the deducted £1.3 million, which is £247,000.
Why is Super-Deduction Better Than the Previous System?
Using the previous system, a business spending £1million on qualifying assets would save £190,000 on its tax bill. Super Deduction adds a further £57,000 tax saving on £1million qualifying capex.
Which Equipment Qualifies for Super-Deduction?
The following plant and machinery assets qualify for either the super-deduction or 50% FYA capital allowance:
· Solar panels
· Computer equipment and servers
· Tractors, lorries, and vans
· Ladders, drills, and cranes
· Office chairs and desks
· Electric vehicle charge points
· Refrigeration units
· Foundry equipment
Please note this is not an exhaustive list, other assets may qualify. However, all equipment MUST be new.
In addition to the above, businesses are required to meet the following criteria to claim Super-deduction:
· Investment in qualifying plant and machinery equipment must have occurred between the 1st April 2021 and 31st March 2023; contracts entered into after the 3rd March 2021 will also be honoured.
· Be a company within the charge to corporation tax.
Furthermore, asset expenditure will NOT qualify if any of the general exclusions outlined apply, for example:
· Expenditure in a chargeable period where the qualifying activity is permanently discontinued.
· Expenditure on the provision of plant or machinery for leasing.
· Expenditure on an asset which was initially acquired for purposes other than those of the qualifying activity.
· Assets acquired by way of a gift.
What happens if the assets are sold?
In the event of the asset being sold or disposed, a balancing charge will arise based on a proportion of the disposal value. If only part of the original expenditure qualified for either allowance, or a different allowance was claimed on part of the expenditure, only part of the disposal receipt will be treated as a balancing charge.
Where Super-deduction has been claimed, the disposal value for the asset will have a factor of 1.3 applied to it, except where the disposal is an accounting period overlapping 1st April 2021 where a lower factor will be applied.
There are huge benefits to business through the Super-deduction incentive, and given the limited lifespan of the tax break, companies should start planning now. Businesses thinking of making any future investments in equipment and machinery, should consider bringing those decisions forward to take full advantage of this regime.
James Hair & Co are here to advise you if you are looking to benefit from the Super-deduction or other capital allowances announced in the Spring Budget. Please contact Barbara Acheson via firstname.lastname@example.org or 01334 654 030 Further information you can download HMRC’s factsheet or visit the Gov.uk Super-deduction website