Announced in March 2021, the Super Deduction is the latest tax incentive offered by the Chancellor to help get the economy back on track following the Coronavirus pandemic.
The Super Deduction is a first-year capital allowance for qualifying plant and machinery purchases.
This allows businesses to make investments in plant and machinery and qualify for a 130% capital allowance deduction on that investment.
It’s a temporary allowance that will run for two years starting from 1st April 2021 and is only available for Limited Companies.
How does the Super-Deduction work?
Let’s say your business spends £100,000 on a piece of machinery during the qualifying window.
When the business calculates the taxable profits at the year end, the capital expenditure can be claimed as a capital allowance against the profits earned.
Using the Super Deduction, that £100,000 expenditure would reduce the taxable profits by £130,000 (i.e. 130% x £100,000)
At the current corporation tax rate of 19%, this would mean a saving in corporation tax of £24,700 (£130,000 x 19%)
What constitutes qualifying Plant and Machinery?
The following equipment are the kind of assets that would ‘qualify’ for the Super-Deduction:
- Construction equipment
- Manufacturing machinery and equipment
- Commercial vehicles
- Agricultural machinery
- Solar panels
- Office furniture
- Computer equipment
This isn’t an exhaustive list, so it is best to consult with your accountant on any capital purchases that you are thinking of making.
This is not only to clarify if the asset qualifies for the Super-Deduction, but also on planning the timing and financing of any purchase.
HMRC's own guidance on the Super-Deduction can be accessed here.