The 2021 Budget saw Rishi Sunak announce a new £25bn tax break for limited companies, aimed at kick-starting investment by providing 25 pence for every pound of spending on plant and machinery, called Super deduction tax relief
For expenditure incurred from 1 April 2021 until the end of March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments up to the highest-ever £1 million threshold.
What are capital allowances?
Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax-deductible. Businesses deduct capital allowances when computing their taxable profits.
There are two main types of capital allowances:
- Writing Down Allowances (WDAs) for plant and machinery which covers most capital equipment used for a trade.
- Structures and Buildings Allowances (SBA) – covering the construction and renovation of non-residential structures and buildings.
What can I claim the super-deduction against?
Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. The kinds of assets which may qualify include:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks,
- Electric vehicle charge points
- Refrigeration units
- Compressors
- Foundry equipment
Example of the super-deduction in practice
A courier company wanting to reduce its carbon footprint spends £1million on electric vehicle charging points, hybrid vans and solar panels. Deciding to claim the super-deduction means the company can deduct £1.3 million (130% of the initial investment) when computing its taxable profits. By deducting £1.3 million from taxable profits will save the company up to 19% (or £247,000) on its corporation tax bill.
Can the super-deduction be used to buy second-hand equipment?
Used equipment is excluded from the super-deduction. So if you’re buying, buy new.
If you would like some advice on how your business could take advantage of this tax break, contact one of our accountants now.
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Summary of the Super Deduction Tax Relief Scheme of 2021
In March 2021, the United Kingdom’s Chancellor of the Exchequer, Rishi Sunak, unveiled an ambitious tax incentive known as the Super Deduction Tax Relief Scheme. This initiative was designed to stimulate business investment and boost economic recovery in the aftermath of the COVID-19 pandemic. The Super Deduction Scheme represented a significant departure from conventional tax policies, offering businesses an unprecedented opportunity to reduce their tax liabilities. This article delves into the details of the Super Deduction Tax Relief Scheme of 2021 and its implications for businesses.
The basics of the Super Deduction Tax Relief Scheme
At its core, the Super Deduction Tax Relief Scheme is a temporary tax incentive aimed at encouraging companies to invest in capital assets. Under this scheme, businesses could claim a super deduction of 130% on qualifying capital expenditure. This meant that for every £1 a company invested in eligible assets, they could reduce their taxable income by £1.30, effectively accelerating their tax relief. It was hailed as one of the most generous tax incentives in recent history.
Qualifying Expenditure
To qualify for the Super Deduction, companies had to make investments in specific categories of capital assets. These included machinery, plant equipment, computer equipment, and certain vehicles. However, it’s important to note that not all assets were eligible, and there were restrictions on certain industries and types of assets.
Temporary Nature of the Scheme
The Super Deduction Tax Relief Scheme was designed as a temporary measure, available for a limited time period. It applied to qualifying investments made between April 1, 2021, and March 31, 2023. This created a sense of urgency for businesses to take advantage of the scheme and make investments during this window to maximise their tax relief.
Impact on Businesses
The Super Deduction Scheme had a profound impact on businesses across the UK. It incentivised capital investments and enabled companies to improve their operational efficiency and competitiveness. Small and medium-sized enterprises (SMEs) benefited significantly, as they could claim the relief on qualifying investments, reducing their tax burden and providing additional capital for growth.
Challenges and Criticisms of Super Deduction Tax Relief Scheme
While the Super Deduction Scheme was lauded for its potential to boost business investment, it also faced criticism and challenges. Some argued that it favoured larger corporations with the financial capacity to make substantial capital investments. Additionally, the scheme’s temporary nature created uncertainty for businesses, as they had to plan investments within a limited timeframe.
The Super Deduction Tax Relief Scheme of 2021 represented a bold and innovative approach by the UK government to stimulate economic recovery in the wake of the COVID-19 pandemic. By offering businesses a 130% super deduction on qualifying capital investments, the scheme aimed to encourage investment, spur economic growth, and ultimately benefit the broader economy. While it faced some criticisms and challenges, it undeniably had a significant impact on businesses and tax planning during its limited timeframe. As the scheme came to an end on March 31, 2023, businesses evaluated its impact on their bottom lines and strategic planning for the future.
