Are you making the most of super-deduction tax relief?

Businesses across the UK are already benefitting from the temporary tax relief offered by the super-deduction but many more could still be missing out on this vital support.

The super-deduction scheme was introduced on 1 April 2021 and will run until 31 March 2023. It allows firms investing in qualifying plant and machinery assets to benefit from a 130 per cent first-year capital allowance.

This allows companies to cut their tax bill by up to 25p for every £1 they invest. Most companies also benefit from a 50 per cent first-year allowance for qualifying special rate (including long life) assets.

Thanks to the super-deduction, companies will be able to claim allowances of 130 per cent on most new plant and machinery investments that ordinarily qualify for main rate writing down allowances, the list is very comprehensive and we can help advise you on what may qualify.

Businesses can claim a first-year allowance of 50 per cent on most new plant and machinery investments that ordinarily qualify for special rate writing down allowances.

This includes expenditure on some types of plant or machinery, if neither annual investment allowance (AIA) nor first year allowances (FYAs) are available, which would normally be allocated to a ‘special rate pool’, such as:

  • Parts of a building considered integral – known as ‘integral features’
  • Items with a long life
  • Thermal insulation of buildings.

To benefit from the relief, the assets purchased must be new and not second hand or refurbished equipment, nor purchased from a related party. Cars will not qualify.

The relief is also only available to incorporated companies, but unincorporated businesses, such as partnerships and sole traders, can continue to benefit from the Annual Investment Allowance (AIA) which permits a deduction of 100 per cent for qualifying plant or machinery expenditure up to the threshold of £1 million until March 2023.

Here is an example provided by HM Revenue & Customs (HMRC) on how the super-deduction works:

  • A company incurring £1 million of qualifying expenditure decides to claim the super-deduction
  • Spending £1 million on qualifying investments will mean the company can deduct £1.3 million (130 per cent of the initial investment) when computing its taxable profits
  • Deducting £1.3 million from taxable profits will save the company up to 19 per cent of that – or £247,000, which is 19 per cent of £1.3 million – on its Corporation Tax bill.

The AIA remains available alongside the super-deduction for incorporated businesses as well, so businesses must review how they use these schemes together to maximise the tax relief available.

If you would like assistance claiming tax relief using the super-deduction capital allowance or would like to know more about other ways to reduce your Corporation Tax bill, please speak to our corporate tax team.

Posted in News, Newswire.