The UK economy is set to bounce back in the next 12 months and to aid with this the Chancellor, Rishi Sunak, announced a new incentive for companies to help them invest in capital equipment in his Budget on 3rd March 2021 .
The new super deduction will run for two years from 1 April 2021 and is a radical new “super-deduction” of 130% for investment in new plant. As usual there are plenty of pitfalls for the unwary so here are the key bullet points:
- The incentive is for limited companies only. The super deduction is not available for sole traders or partnerships.
- The equipment purchased has to be new. Second hand equipment will still qualify for Annual Investment allowance and general capital allowances but not the super deduction.
- The new deduction is not available for motor cars but tractors, lorries and vans qualify.
- The asset purchased must also qualify for the main pool (assets entitled to 18% capital allowances). That means assets which come under the special pool such as integral features or long life assets do not qualify.
- Assets purchased for the purposes of leasing are also excluded from the super-deduction claim. That means if you are a landlord with rental properties in a limited company you will not be able to make the enhanced claim for assets rented out.
- One complication is that from 1st April 2023 the corporation tax rate goes up to potentially 25%. If your year end is after 1st April 2023, say 31st December 2023, and you spend £200,000 on assets on 31st March 2023 there will be a restriction on the super-deduction relief so that you do not claim the 130% deduction and use this to get tax relief against profits taxed at 25%. For year ends which fall before 1st April 2023 there will be no restrictions.
- Another word of warning. If you dispose of an asset for which you have claimed a super-deduction in a period before 31st March 2023 then you also have to account for an additional potential addback of 30% of sale proceeds. Whilst most assets are depreciating a few such as cranes, specialist equipment etc… can hold their values.
A simple example will demonstrate the benefits:
Say you bought a brand new van for £40,000 on 1st June 2021 you would be able to claim:
Super-deduction 130% of £40,000 = £52,000
Tax saving at 19% = £9,880
Effective tax relief at 24.7%.
The above sounds complicated and to a certain extent it is! In the main however most new plant and machinery will get the 130% super-deduction up to 5th April 2023.
The key is if you are planning any sizeable capital expenditure talk to your advisor. If you are a client of Friend & Grant please contact your contact manager.
HMRC have issued a factsheet which can be accessed here.
The content in this blog is correct as at 20/05/2021. See terms and conditions.