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The UK Government have introduced a temporary new form Capital Allowances on expenditure on qualifying plant and machinery.

These new allowances have been introduced as Super-deductions and are available to companies on purchases made between 1 April 2021 and 31 March 2023.

It's the most attractive tax incentive offered by a UK Government, so let's take a look at some detail.

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What is the super-deduction?

Between 1 April 2021 and 31 March 2023, any investments your business makes in main rate (main pool) plant and machinery may qualify for a 130% capital allowance deduction. This increase in the allowance takes your tax deductions up to 25p for every £1 spent from 19p for every £1 spent.

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How does the super-deduction work?

The best way to show how this works is to work through an example:

Let's say your business spends £10,000 on main rate equipment and you're eligible to claim the super-deduction allowance.

When you calculate your taxable profits your corporation tax deduction will be £13,000 (ie. £10,000 x 130%). Deducting £13,000 from your taxable profits will save your business up to 19% of that - or 19% of £13,000 which is £2,470. Without the super deduction, you would save tax of £1,900, so the super-deduction is saving you another £570.

From an accounting perspective, our advice for businesses looking to maximise your tax savings is to plan well ahead.

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Is your business able to claim the super-deduction?

Unfortunately it's only companies that pay Corporation Tax that are able to claim the increased allowances. This excludes sole traders and partnerships as their income is reported personally and personal tax is paid on their profits.

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What assets can I buy that will qualify?

Not all business investments will qualify for the new allowances, but the qualifying groups are quite wide.

The ‘super-deduction’ includes all new plant and machinery that would ordinarily qualify for the 18% main pool rate of capital allowances (writing down allowances). Examples include:

computer equipment and servers
tractors, lorries, vans
ladders, drills, cranes
office chairs and desks
electric vehicle charge points
refrigeration units
compressors

Bear in mind that that certain expenditure is excluded, for example, the acquisition of company cars, as well as the purchase of second-hand plant and machinery.

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Can I still use finance to purchase assets?

The legislation was originally a bit ambiguous about Hire Purchase, and therefore people assumed the answer was no. In fact, in a scenario where your company makes payments in order to acquire an asset, and where there is an expectation that legal ownership of the asset will at some point pass to you (i.e. the lessee, as it typically the case with hire-purchase agreements), the super-deduction should be available to you.

There are some additional clauses to be careful of though, so consider individual purchases with your accountant before proceeding.

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Can Accountr help with this?

Absolutely! Now that the super-deduction has been in place for a little while, we're seeing clients with purchases that qualify and those that don't too. We're able to help in decision making, and include claims within your Corporation Tax returns too.