Super-deduction tax – how does it work?

Published by Sandra Smith on

The Chancellor Rishi Sunak introduced several new schemes in the 2021 budget in order to support the UK economy following the impact of the pandemic.  The super-deduction tax was announced to help boost investment.

Between 1 April 2021 and 31 March 2023, businesses investing in qualifying new plant and machinery will be able to claim:

  • 130% super-deduction capital allowances on qualifying plant and machinery investments.
  • 50% first year allowance for qualifying special rate assets.
  • Annual investment allowance will provide 100% relief for plant and machinery investments up to its highest ever threshold of £1m (until December 2021).

This new super-deduction will allow businesses to cut their tax bill by up to 25p in every £1. Only companies that are subject to corporation tax can apply, so this will not be available to sole traders, partnerships or limited liability partnerships.

Unincorporated businesses such as sole traders and partnerships should utilise the Annual Investment Allowance which is currently £1m until the end of 2021.

What are Capital Allowances?

The costs of certain capital assets can be written off against taxable income. Businesses deduct capital allowance when calculating their taxable profits for the year. The two main types of capital allowances are:

Writing down allowance for plant and machinery and structures and buildings allowance.

What is Plant and Machinery?

For the purpose of claiming capital allowances, the most tangible assets are considered plant and machinery. Some examples of assets which would qualify include:

  • Computer equipment and servers.
  • Office chairs and desks.
  • Tractors, lorries and vans.
  • Electric vehicle charging points.
  • Solar panels.
  • Ladders, drills and cranes.

The details of the new super-deduction scheme announced in the 2021 budget are quite complex. Get in touch with the friendly Clear Vision Financial Management team to find out how we can help you with your accounting needs. You can call us on 01794 330025 or email us.