The Super-Deduction: Everything you need to know

The super-deduction is a 130% first-year capital allowance for qualifying plant and machinery assets; and a 50% first-year allowance for qualifying special rate assets. This article will outline what it is, if your business is eligible, how to work out how much you can claim and how to claim and how to start the claims process. If you have any questions, please get in touch with your Swindells’ partner.

What is the Super-Deduction?

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

• a 130% super-deduction capital allowance on qualifying plant and machinery investments
• a 50% first-year allowance for qualifying special rate assets

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.

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 assets bought have to be new and unused in order to qualify, so second hand equipment does not qualify for the super-deduction no matter when they are bought. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:

• Solar panels
• Computer equipment and servers
• Tractors, lorries, vans
• Ladders, drills, cranes
• Office chairs and desks,
• Electric vehicle charge points
• Refrigeration units
• Compressors
• Foundry equipment

More detail on the eligibility of different types of investments for different types of capital allowances is set out in the factsheet available via the link below:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/967202/Super_deduction_factsheet.pdf

Are you eligible for the super-deduction?

Super-deduction and special rate first year capital allowances are temporary allowances you can claim on the cost of qualifying plant and machinery. Special rate first year allowance is also known as SR allowance.

You can only claim these allowances if you are a company.

You can only claim these allowances if all of the following apply:

• your company is subject to Corporation Tax
• you incurred the expenditure on or after 1 April 2021, but before 1 April 2023
• you did not buy the plant and machinery due to a contract you entered into before 3 March 2021

Follow the link below to work out whether your company qualifies, where you will get help to understand:

• if your expenditure qualifies for the super-deduction or special rate first-year allowance
• how much relief you may be entitled to

This does not cover every eventuality. Before you claim, you must check that:

• you comply with all the rules for these reliefs
• that your claim has been worked out correctly

https://www.tax.service.gov.uk/guidance/check-if-you-can-claim-super-or-special-deduction-for-capital-allowance/within-corporation-tax

Check how much you can claim for the special rate first year allowance:

The rate of special rate first year allowance is 50%.

Special rate plant and machinery do not qualify for the super-deduction but may qualify for the 100% annual investment allowance.

If you can only claim the 50% special rate first year allowance, you can add the balance of the expenditure to your special rate pool in the following accounting period to claim writing down allowances.

Learn more about rates and pools by following the link below:

https://www.gov.uk/work-out-capital-allowances/rates-and-pools

How to work out how much you can claim for the super-deduction:

If your accounting period ends before 1 April 2023, the rate of super-deduction is 130%.

If your accounting period ends on or after 1 April 2023, you need to follow these steps to work out what you can claim:

1. Count the number of days in the accounting period before 1 April 2023.
2. Divide that number by the total number of days in the accounting period.
3. Multiply this result by 30.
4. Add 100 to this result to get the ‘relevant percentage’.
5. Multiply your qualifying super-deduction expenditure by the ‘relevant percentage’.

How to make a claim:

When you’ve worked out your capital allowances you can claim on your Company Tax Return if you’re a limited company - you must include a separate capital allowances calculation. The amount you can claim is deducted from your profits.

When you can claim:

You must claim in the accounting period you bought the item if you want to claim the full value under:

• annual investment allowance
• first year allowances

If you do not want to claim the full value you can claim part of it using writing down allowances. You can do this at any time as long as you still own the item.

When you bought it:

The date you bought it is:

• when you signed the contract, if payment is due within less than 4 months
• when payment’s due, if it’s due more than 4 months later

If you buy something under a hire purchase contract you can claim for the payments you have not made yet when you start using the item. You cannot claim on the interest payments.

If you have any questions or need assistance with the super-deduction claims process please get in touch with your Swindells’ partner who will be able to advise you further.