Are you operating a limited company? Is your business about to invest in some new plant and machinery?
If yes, then the new Super Deduction tax relief on capital asset investments could help you with corporation tax savings on purchases made after 1 April 2021.
Feel free to give our experts at BPB Accountants a call on 01322 555530 and talk it through.
The HMRC website guidance is very helpful, click here to read more details.
General description of the Super Deduction measure
This measure will temporarily introduce increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
The measure also temporarily amends the rules covering expenditure incurred on plant and machinery used partly in a ring fence trade in the oil and gas sector.
This measure is designed to stimulate business investment. It does so by increasing the incentive to invest in plant and machinery by offering higher rates of relief than were previously available.
Background to the measure
Capital allowances allow businesses to write off the costs of tangible capital assets, such as plant or machinery, against their taxable income. They take the place of commercial depreciation, which is not an allowable tax deduction.
First-year allowances allow enhanced rates of relief for certain plant and machinery investments, providing claims are made in the period the expenditure is incurred. The super-deduction is an enhanced first-year allowance providing an allowance exceeding the cost of the asset.
The measure will have effect in relation to qualifying expenditure from 1 April 2021 and will exclude expenditures incurred on contracts entered into prior to Budget day on 3 March 2021.
Part 2 Capital Allowances Act 2001 (CAA 2001) sets out the current law for plant and machinery allowances.
First-year qualifying expenditures are currently contained within Chapter 4, Part 2, CAA 2001 and the allowances for these expenditures set out at section 52, Chapter 5, Part 2 CAA 2001.
General exclusions to first-year allowances are within s46.
Chapter 5 contains provisions on pooling, disposal events and disposal values.
Chapter 17 contains anti-avoidance provisions which apply to first-year allowances.
Legislation will be introduced in Finance Bill 2021 to amend Part 2 CAA 2001 to bring in the super-deduction, an enhanced temporary 130% first-year allowance for main rate assets, and a 50% first-year allowance for special rate assets.