Throughout the pandemic our dedicated team have been making it their business to keep up to date with the numerous complex incentives and support packages that have been implemented by the government. Our job is to navigate the detail and make recommendations to our clients on the best packages available to them.
One of these measures, the newly introduced super deduction, can be a very complex area and one that our tax team has been taking a closer look at.
To help ensure that the UK capital allowances regime is amongst the world’s most competitive, the government has introduced this new super deduction which will allow companies to reduce their corporation tax bill by up to 25p for every £1 they invest in new plant and machinery assets.
From 1 April 2021 until 31 March 2023, companies will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery assets; and
- a 50% first-year allowance for qualifying special rate assets.
As a result, companies can write off 130% off the cost of brand new and unused main rate pool assets against its taxable profits in the year of purchase.
There are some complexities to the new super deduction legislation. For example when you sell assets where a super deduction was claimed, the sale proceeds become taxable in the year of disposal yet the tax implications could be different for your company depending on the date of disposal. Furthermore, the super deduction does not apply to new cars but can apply to new vans.
It is worth noting that, if you purchase plant and machinery which does not qualify for the super deduction (for example it is not available to businesses that operate as sole traders, partnerships or LLPs), you could still benefit from AIA (Annual Investment Allowance) which allows 100% of cost on qualifying expenditure to be deducted when computing taxable profits in the year of the purchase. Annual investment allowance (AIA) has limit of £1m, which is expected to be reduced to £200,000 on the 1st January 2022.
By understanding how your business operates we are always able to advise on the best tax planning solutions for your company and we can provide guidance on how to structure purchases of plant and machinery going forward in order to ensure tax relief is maximised.
For more information on the super deduction, HMRC have published a fact sheet here.