Super-Deduction: What is it, can I claim it and, if so, how?

Super-deduction
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UK businesses have been granted one of the country’s most generous tax relief packages in modern history. Tax relief of 130%. So high, it’s been coined as the Super-Deduction.  

The Super-Deduction provides businesses with a 130% first year allowance on Capital Tax. Any other year, this is the equipment that would qualify for an 18% writing down allowance rate. As an example, a qualifying plant and machinery investment of £30,000 would be calculated as having an 18% writing drawdown allowance of £5,400. The First Year Allowance would see that same £30,000 investment qualify for the Super-Deduction at 130% reducing the capital tax liability by £39,000.  

Whatever the qualifying spend is between now and the end of March 2023 (when the Super-Deduction period ends) may decrease a company’s tax liability. 

For long life assets that may not qualify for the Super-Deduction rate, there is also a 50% First Year Allowance (FYA).  

To use an example of when this would apply, solar panels would be one. It’s a long-life asset to a business as it would reduce its operational expenses on energy, and contribute to lower emissions, but it would not be classed as traditional “plant and machinery equipment” because solar equipment is not necessary for the functions of trade.  

A lorry or van is needed for a logistics firm to transport goods from point A to point B. An electrical charge point for a fleet of electrical vehicles would be a long-life asset. For electrical vehicles, delivery vehicles being changed from petrol or diesel to electric vehicles may be a qualifying machinery investment, but the charging equipment would be the long-life investment as that would still be operational for new vehicles 5 or 10 years down the line.  

That being said, the allowance is for plant and machinery equipment necessary for trade. Logistics companies would qualify for lorries and vans. Construction firms would qualify for hiab lorries, cranes, dump trucks, etc. Company cars do not qualify because they are not required to conduct trade.  

The sole purpose of the corporate tax relief is to get businesses investing in plant and machinery to boost the British economy. In previous years, the lack of economic investment has led to a decline in business investment throughout the UK.  

Part of the economic recovery (not just from the pandemic, but an overall lack of economic investment) is why there is such a generous package available between now and March 2023. It’s like multiple years of economic decline being poured back into the economy in a very short time. 

Can I claim and how?  

To be able to claim the Super-Deduction rate, businesses must be incorporated. It is not available to sole traders as it is a corporate tax deduction.  

It should also be noted that when a business invests in plant and machinery equipment that qualifies for the Super-Deduction rate of 130%, it is only in the first year and only applicable to brand new assets. Second-hand plant and machinery purchases will not qualify for the 130% corporate tax relief.  

The key wording in the new budget is “qualifying”. There are criteria to be met for purchases to qualify. To ensure you make sound investments, ask your accountant for advice before spending.  

  

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