The super deduction capital allowance was introduced in March 2021 as a 2-year temporary measure to encourage businesses to invest in purchasing new equipment and jumpstart the post-pandemic economy.

The option to claim the super-deduction offering 130% first-year tax relief is soon ending. The deduction is only available to companies until 31 March 2023. The super-deduction was designed to help businesses claim a higher deduction than they would typically qualify for to help finance expansion after the pandemic.

How does the super seduction scheme work?

The super-deduction tax break was introduced on 1 April 2021 and allowed businesses to deduct 130% of the cost of any qualifying investment on most new plant and equipment. With a corporation tax rate of 19%, this means that for every £1 business invests, it can reduce its tax bill by up to 25p.

For example, a company purchased equipment in June 2021 for £10,000. In their 2021/2022 Company Tax Return, the business can claim 130% (£13,000) against their taxable profits, which means that the business can save £2,470 on its corporation tax bill (£13,000 at 19%).

What expenditure qualifies?

Below are examples listed on the gov.uk that qualify for the super-deductions:

• machines such as computers, printers, lathes and planers
• office equipment such as desks and chairs
• vehicles such as vans, lorries and tractors (but not cars)
• warehousing equipment such as forklift trucks, pallet trucks and stackers
• tools such as ladders and drills
• construction equipment such as excavators, compactors, and bulldozers
• some fixtures, such as kitchen and bathroom fittings and fire alarm systems

In addition, an enhanced first-year allowance of 50% on qualifying special rate assets also applies to expenditures within the same period. This includes most new plant and machinery investments that would ordinarily qualify for a 6% special rate writing down allowances.

Who can participate?

The super-deduction is only for companies. This means that self-employed traders are unable to benefit. However, they could benefit from the Annual Investment Allowance (AIA) for investments of up to £1 million. The AIA allows a 100% tax deduction on qualifying plant and machinery expenditures. The temporary limit of £1 million will also remain in place until 31 March 2023 before reverting to the usual £200,000 limit. Moreover, self employed people can also claim a 100% first-year allowance (FYA) on the purchase of certain qualifying Plant & Machinery (P&M).

If you would like more advice regarding capital allowances or any other queries you might have, please contact us at info@gkaccountingservices.com or call us on 01269 508 081, where we will be more than happy to answer any of your questions.