The latest tax incentive offered by the Chancellor to help get the economy back on track following the Coronavirus pandemic, seems one of the most generous yet.  The new first-year capital allowance for qualifying plant and machine assets (which has also been nicknamed the super-deduction allowance or the 130% allowance) allows for any investments a business makes in plant and machinery to qualify for a 130% capital allowance deduction.  It’s a temporary allowance that will run for two years starting from 1st April 2021.

Simply put, it means that until March 2023, your company can claim back 130% of the capital cost as a deduction against your corporation tax – that’s up to 25p for every pound you invest in ‘qualifying’ machinery and equipment.

How does super-deduction work?  Let’s look at an example for further clarity – and remember this only applies to new assets:

  • Let’s say your business spends £100,000 on a piece of construction plant.
  • When you calculate your taxable profits (the capital expenditure x 130%) your corporate tax deduction will be £130,000 (i.e. 130% of your initial investment).
  • Deducting £130,000 from your taxable profits will save your business up to 19% of that (19% of £130,000 is £24,700). That’s a £24,700 reduction in the company tax bill if you qualify for super-deduction.

Is my business eligible for super-deduction tax?

Your business is eligible if you spend money on any of qualifying plant and machinery assets between 1 April 2021 and 31 March 2023. What constitutes ‘qualifying’ I hear you ask? The following equipment are the kind of assets that would ‘qualify’ for super-deduction:

  • Construction plant
  • Agricultural machinery
  • Solar panels
  • Computer equipment and servers
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • CNC and other types of equipment
  • Compressors
  • Foundry equipment

Please note: This is not an exhaustive list, just a guide.  Visit the HM Treasury super-deduction guide for more details.

Can I claim super-deduction if I use asset finance?

Can I claim super-deduction if I use asset finance?

In the draft super-deduction legislation published on 3 March 2021, plant and machinery investment incurred under “a hire purchase of similar contract” has to meet “additional conditions” to qualify for the super-deduction.  It would be wise to discuss your particular situation with your accountant to confirm whether the super-deduction is available to you. 

In fact, when planning on buying an asset, we would always recommend chatting with your accountant first to ensure you are purchasing the equipment in the best way possible.  Our friendly team at Bells are always here if you need them whether it’s related to super-deduction, personal tax or any other of our well respected accountancy services.