In this year’s Budget, Rishi Sunak, Chancellor of the Exchequer, announced the new Super Deduction Allowance, as part of the Finance Bill 2021, whereby businesses are able to claim for any expenditure they’ve incurred on new fixed assets of plant and machinery.
The new allowance is only for the actual expenditure incurred between 1st April 2021 and 31st March 2023 (under a construction contract from 3rd March 2021) and is in the form of relief of 50% in the first year of the qualifying expenditure. However, this new tax deduction is only applicable to companies and corporation tax. This means that sole traders, partnerships and LLPs lose out.
The new super deduction allowance is applicable alongside the existing Annual Investment Allowance (AIA), which remains at £1 million per business in 2021, although the AIA will return to £200,000 with effect from 1st January 2022.
This new tax deduction for companies is only available for new plant and machinery whereby the normal 18% written down allowance is applicable. According to HMRC’s guidance, the plant and machinery that qualifies for the deduction includes:
Items you keep for business use
In total, the new super deduction allowance provides tax relief up to 130% of the qualifying expenditure, in comparison to the 18% written down allowance for plant and machinery. It is also deductible against corporation tax in the year the fixed asset was bought, enabling companies to reduce their tax bill by as much as 25p per £1 invested. In addition, there is no cap to the level of capital investment that qualifies for the new tax allowance.
However, if the expenditure that qualifies for the super deduction allowance goes beyond 1st April 2023, the amount of tax relief will be reduced and is replaced by either:
As well as the new super deduction allowance, there is also the special rate allowance which is applicable to new plant and machinery that includes integral features in a building, as well as lifelong assets. The special rate allowance tax relief is 50% of the qualifying cost in the first year, and the remaining balance is subject to the normal special rate to be written down at 6% in future years.
For companies that later dispose of the plant and machinery on which they claimed the super deduction allowance of the special rate allowance, they will be liable for a charge on the balance over the chargeable period. For example, the balancing charge is disposal value multiplied by a relevant factor, which is dependent on the following when the asset is disposed:
At Wilby Jones, we provide professional advice and services covering all aspects of taxation for sole traders, partnerships, LLPs and limited companies. As members of the Chartered Institute of Taxation, you can rest assured that our experience and knowledge is of the highest quality. Our friendly, highly-approachable team is able to help you with tax advice, probates, accounting, legal support and corporate finance.