It’s the super deduction

Date posted: 22nd Mar 2021

Fans of Ant & Dec’s Saturday Night Takeaway, may remember the “super computer” that used to travel the country and ask ordinary folk to perform for prizes!

As it turns out, the acquisition of such a piece of equipment may qualify for Rishi Sunak’s recently announced “super deduction”……

Essentially the acquisition of brand new plant, machinery and equipment could qualify for additional tax relief!


Say that again?

Yes, the acquisition of brand new plant, machinery and equipment could qualify for additional tax relief!

I’ll break down the who, what, how and when of the facts.


Who qualifies?

Sadly not all businesses will qualify.

Much like the “super deduction” for research and development expenditure, only trading companies qualify. Therefore those businesses operating as sole traders, partnerships and LLPs (like ourselves, unfortunately!!) will not qualify.


What expenditure qualifies?

The expenditure must firstly be on “new and unused” plant and machinery. So a second hand machine acquisition would not qualify, even if it is “new” to your company.

Essentially, expenditure can be incurred on items that currently qualify for the annual investment allowance such as:

  • Machinery
  • Tools
  • Computer equipment
  • Furnishings and furniture
  • Software
  • Commercial vehicles such as vans, lorries, trucks etc.

Cars unfortunately do not qualify for this relief.


What is the additional tax relief?

The additional tax relief is a super deduction of 30% on top of the actual cost of the plant and machinery. So if a machine costs your company £100,000, you should be able to essentially claim a tax deductible cost of £130,000.


How does my company claim the additional tax relief?

The claim is made via the company tax computation that accompanies the company tax return as part of the HMRC submission. The corporation tax payable in connection with that tax return will be reduced accordingly.


When can I claim the tax relief?

The relief only applies to expenditure between 1 April 2021 and 31 March 2023.

It is important to time the expenditure correctly, especially if you do not have a 31 March year end. The relief may be lower if the expenditure is incurred in an accounting period that straddles 31 March 2023.

In addition, the tax treatment of disposal proceeds differs to the disposal of plant and machinery that has not been subjected to the super deduction. Also, some of the super deduction may be reclaimed, if the plant and machinery is disposed of before 31 March 2023.


What about expenditure on electrical systems, lights and heating etc?

There is no “super deduction” on this type of expenditure but you may be able to advance some future deductions to advance tax relief for expenditure on air conditioning, water systems, lighting systems, lifts etc.

Again, special rules apply to the disposal of such items.


How does this work with the annual investment allowance (AIA)?

The AIA is a 100% allowance on capital expenditure up to a specified limit and covers similar expenditure to the super deduction.

The AIA and super deduction will co-exist for the time being. Of course, the AIA needs to be shared between group and associated companies whereas the super deduction does not.

The current AIA limit is £1m and this has been extended to expenditure before 31 December 2021. The AIA limit will then drop to £200,000 from 1 January 2022.

However, as ever, timing is critical on these matters and it may be better to utilise the AIA against the expenditure on air conditioning, water systems, lighting systems, lifts etc.


Final points

It is absolutely imperative that your capital expenditure plans are discussed with your accountants ahead of any planned expenditure to ensure that the reliefs available are maximised.


Lee Watson - DirectorLee Watson – Tax Director

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Telephone: 01325 349700

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