• Greenline Accountants

A brief guide to the Capital Allowance "Super deduction"

One of the headline policies from March's Budget, was the Chancellor's plan to introduce a tax break for businesses investing in qualifying plant and machinery, know as the Capital Allowance "Super deduction". The idea is quite simple - incentivise capital investment by creating an additional tax break, thus reducing the effective overall cost of the fixed asset. The scheme will run from 1 April 2021 - 31 March 2023, so it is worth companies familiarizing themselves with the details now in order to plan and decide whether it is worthwhile to consider capital investments in the short to medium term


So, how doe it work?

Investments in qualifying assets and plant and machinery will qualify for a 130% capital allowance super-deduction, effectively a 30% extension of the Annual Investment allowance.


EG - if a company spends £100,000 on new IT equipment, they would be able to deduct 130% of their investment (i.e. £130,000), when calculating their taxable profits. So at a corporation tax rate of 19%, then the tax saving is £24,700


However there are some restrictions. The scheme only applies to Limited companies, and if certain conditions are met, landlords and property developers operating through a limited company - not individuals or partnerships.


Additionally the type of asset that a businesses invests in must be new and (unused) that qualify as "main rate pool expenditure" (second hand assets do not qualify) , which is classed as anything you keep and use in your business over a prolonged period of time such as IT equipment, office furniture, plant and machinery, security systems etc.


Hire purchase agreements could qualify for relief, as long as they will eventually be owned by your company and have been brought into business use straight away, but assets leased or financed that aren't owned by the company will not.


For more guidance on the Super deduction, or to discuss your CapEx plans in more detail, please contact us.