The new super deduction and how it works in practice

23 Jun 2021

Withholding Tax

In March, Chancellor Rishi Sunak announced the introduction of a new ‘super deduction’, which allows companies to claim 130% relief on the acquisition of most new plant and machinery.

Peter Harker, Partner at Saffery, and a member of the firm’s Land and Rural Practice Group, said:

“The super deduction is a new measure designed to encourage capital expenditure.  It permits all companies subject to UK corporation tax to claim 130% capital allowances on qualifying plant and machinery which would normally be relieved at 18% per annum.”

What are the key points to consider for eligibility for the super deduction?

  • The assets being acquired must be new and unused.
  • It can only apply to contracts placed after 3 March 2021.
  • It can cover capital expenditure on qualifying plant and machinery from 3 March 2021 to 31 March 2023.

It should be noted at the outset also that where assets on which the super deduction has been claimed are disposed of in accounting periods prior to 1 April 2023 clawback rules are applicable.

How does it compare to the Annual Investment Allowance (AIA)?

  • The AIA allows companies to deduct the full value of the first £1 million of qualifying expenditure from its profits before tax. Writing down allowances (WDAs) are then claimed on any expenditure in excess of this limit.
  • The £1 million AIA has been extended to 1 January 2022.
  • The AIA is good for businesses purchasing second hand assets which do not qualify for the super deduction and for special rate assets that attract relief at the lower rate of 50%.

Peter Harker added:

“There will be times when the super deduction cannot be applied but where the AIA is available.  Qualification for the super deduction and AIA also differs, so it is important that the right approach is used.

“Additionally, companies that make trading losses as a result of significant investment in fixed assets in order to qualify for the super deduction may now have taxable losses that they can carry back against trading profits for the previous three years.

“Taking professional advice is important as ever.”