Have you taken advantage of the Super-Deduction tax relief?

A new temporary first-year allowance, the Super-Deduction, was introduced into the corporation tax regime in 2021. This tax relief ends on 31 March 2023, so now may be a good time to buy new plant and machinery.  

Who’s eligible for the relief?

The Super-Deduction is available to most companies. However, unincorporated businesses, such as sole-traders and partnerships, won’t be eligible for the relief.

There are no restrictions to prevent larger companies or groups from accessing the relief.

What is the relief?

Companies are able to 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 will be:

• 130% of the cost of qualifying plant and machinery which would ordinarily attract main rate capital allowances (ordinarily 18%).
• 50% of the cost of qualifying plant and machinery which would ordinarily attract special rate capital allowances (ordinarily 6%).

Note that for periods ending 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 12-month accounting period to 31 December 2023.

Are there any restrictions?

Although there’s no maximum amount of expenditure that can be claimed under the Super-Deduction, there are a few restrictions. Assets that will not qualify include:

• Used or second-hand plant and machinery
• Cars
• Structures and buildings
• Plant and machinery purchased after 1 April 2021, where contracts were entered into before 3 March 2021

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).

Companies won’t 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 have had a Super-Deduction are later disposed of. Any proceeds received for main rate assets are essentially inflated to 130% to create a balancing charge that will be added to taxable profits. A similar measure is in place for special rate assets that have had the 50% Super-Deduction.

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.

Need help?

If you have any questions on the Super-Deduction, or other capital allowances for businesses, please get in touch with your usual contact. You can find contact details on the Our People section of the website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Sarah Lambert