On 3 March 2021, the Chancellor of the Exchequer announced in the Budget a new enhanced capital allowances regime, to stimulate investment in the economy by providing an increased incentive for UK businesses to invest in plant and machinery through generous rates of relief in the period the expenditure was incurred.
What is the super-deduction?
For expenditure incurred from 1 April 2021 until the end of March 2023, the super-deduction allows some companies to claim 130% capital allowances in the first year on qualifying plant, machinery and equipment investments.
For special rate assets (for example integral features of a building, lifts, solar panels and thermal insulation) a 50% first-year allowance applies.
How can this benefit UK businesses?
In comparison to previous allowance systems, the super-deduction accelerates the benefit of tax relief within it’s first year. For example:
- A company incurring £1m of qualifying expenditure decides to claim the super-deduction.
- Spending £1m on qualifying investments will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits.
- Deducting £1.3m from taxable profits will save the company up to 19% of that – or £247,000 – on its corporation tax bill.
( Example from HM Treasury – Gov.uk )
What sorts of assets may qualify for the super-deduction?
- IT and computer equipment
- Plant and machinery
- Security systems
- Telephone systems
- Commercial vehicles
- Office furniture
- Software
- And much more… This is not a definitive list.
Which businesses can claim?
Only businesses subject to Corporation tax can claim this relief ie Limited Companies. Sole traders, partnerships and LLP’s are excluded.
How long will the super-deduction last?
The super-deduction and the 50% first year allowances are for expenditure incurred between 1st April 2021 and 31st March 2023. If contracts for expenditure were entered into prior to the 3rd March 2021 for delivery after the 1st April, they will be excluded.
If expenditure is incurred in a company’s financial period that straddles the 31st March 2023, the allowance will be restricted to the time period that the allowance applies.
Can the allowance be used with Shire Leasing’s asset finance solutions?
Assets being acquired under Hire Purchase are treated as being owned by the company making the payments, therefore once the asset is brought into use, the full payments will be eligible for the super-deduction allowance.
Ready to invest in plant, machinery or equipment?
If your business is planning to invest in qualifying assets, Shire Leasing can help you to utilise the super-deduction allowance whilst spreading the investment cost affordably via a Hire Purchase solution.
To request a quote, simply speak to your account manager or complete our enquiry form.
Finance for business use customers only. All statements concerning taxation are based on our best understanding of current legislation. Levels and bases of taxation can change at any time. The contents of this blog do not constitute legal, tax, financial planning or any other advice. Please note, other allowances may be available for your business. You should always discuss your business’ unique requirements and choice of finance product with your accountant.
