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What is the new super-deduction for investment in equipment?

20 May 2021
Mark Friend
Digital & Tech, Building & Construction, Reducing Tax, Raising Finance, Building a Business

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:

  1. The incentive is for limited companies only. The super deduction is not available for sole traders or partnerships.
  2. 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.
  3. The new deduction is not available for motor cars but tractors, lorries and vans qualify.
  4. 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.
  5. 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.
  6. 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.
  7. 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%.

Machine


Conclusion

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.

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