The new ‘Super Deduction’ tax scheme (How it works)
The Chancellor announced in his March budget that from 1 April 2021 he would be introducing a new, temporary first year allowance ‘Super Deduction’ tax scheme available to most companies.
What is the relief?
Companies can claim a super deduction against taxable profits for the cost of new plant and machinery purchased between 1 April 2021 and 31 March 2023. The deduction is as follows:
- 130% of the qualifying plant and machinery which would usually be at the main rate capital allowances (18%)
- 50% of the cost of qualifying plant and machinery which would usually be at the special rate capital allowances (6%)
Note that for periods ending on or after 1 April 2023, the allowance will be apportioned by reference to a special formula. As an example, the super deduction rate will be 107.4% for a company with a 12 month accounting period to 31 December 2023.
What is plant and machinery’?
Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. There is not an exhaustive list of plant and machinery assets. The kind of assets which may qualify for either the super deduction or the 50% first year allowance might include:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans, ladders, drills and cranes
- Office chairs and desks
- The installation of electric vehicle charge points
- Refrigeration units
- Foundry equipment
Who is eligible?
Most companies will be eligible for the super deduction and to date, the relief does not appear to be restricted for larger businesses. Unincorporated businesses such as sole traders and partnerships will not be eligible.
What are the restrictions?
There are some assets that will not qualify:
- Used or second hand plant and machinery
- Structures and buildings
- Plant and machinery purchased after 1 April 2021, where contracts were entered into before 3 March 2021. A 100% relief can still be obtained on used plant and machinery through the annual investment allowance (AIA), subject to a maximum amount of expenditure (currently set at £1 million until 1 January 2022). Companies will not be able to claim the AIA and super deduction for the same expenditure. For some special rate expenditure, it may still be beneficial to claim the AIA instead of the super-deduction.
Can the super deduction be clawed back?
The relief may be clawed back where assets that received a super deduction are later disposed of. Proceeds received for main rate assets may be inflated to 130% to create a balancing charge that will be added to taxable profits.
Special rate assets that have had the 50% super deduction may also face an apportioned balancing charge when disposed of rather than full proceeds being allocated back to the pool.
Companies should be mindful that in some circumstances, market value, or an alternative amount, may be used instead of actual proceeds. This could result in greater sums being clawed back.
For more information the link below will take you to the Government’s fact sheet
If you have any questions regarding eligibility for the new scheme or how to claim please get in touch with your Swindells partner who will be able to advise you further
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