Budget 2021: Capital Allowances and the new super-deduction

Cash in on Super-Deduction tax relief at 130%

(4 Minute Read)

What is super deduction tax?

The Chancellor announced a new capital allowance, known as the Super-Deduction.

This offers tax relief at 130% of the cost of new plant and machinery.

This is available from the 1st April 2021 to the 31st March 2023.

How does the super-deduction work?

The Super-Deduction applies to purchases of plant and machinery which would normally belong in the main rate pool for capital allowances.

The Super-Deduction has also been extended to property companies, enabling it to be used for background plant and machinery in leased buildings.

Whereas annual investment allowance (AIA) has a cap, the Super-Deduction doesn’t, which allows for greater corporation tax savings in the year the equipment is purchased.

This will become more important from the 1st January 2022 when the AIA cap reduces back down to £200,000 per year.

The Super-Deduction is not that simple, though. If your tax year does not line up with the 31st March date, then the 130% will be reduced for the 2023 tax year to reflect the portion of the year you were not eligible for it. so it may be worth changing the company year end date.

More about the capital allowance super-deduction

These factors mean that the Super-Deduction is the most attractive option for companies making large purchases of plant and machinery, and it may be worthwhile bringing forward any purchases to make the most of it.

However, from April 2023 the corporation tax rates are changing. The first £50,000 profit will remain taxable at 19%, but any amount over this will be taxed at increasing rates until it reaches the 25% rate for profits over £250,000.

This is timed to start just as the Super-Deduction ends, meaning that, depending on expected profits, it may be worth leaving purchases until after the Super-Deduction to claim AIA relief at the higher tax rate.

Considering the large sums involved, and the potential savings, this is undoubtedly a huge question for most companies to grapple with, as such it pays to have the Tax Experts on your side.

Kind regards Ilyas

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