Super Deduction Explained

In the 2021 Budget earlier this year, the Government introduced the 'super-deduction' allowance, bringing temporary increased reliefs for expenditure on certain plant and machinery for the period between 1 April 2021 and 31 March 2023.

During this time, if you were to invest in certain plant and machinery, you could benefit from the following allowances:

• 'Super deduction' - this is an extension of the current 18% main rate writing down allowance, enabling companies to claim allowances of 130% on most new plant and machinery investments
• A 'first-year' allowance of 50% for most new plant and machinery investments that fall under special rate writing down allowances - currently 6%

In order to benefit from either of the above allowances, you must be liable to corporation tax (i.e. a limited company or an LLP with corporate members).

Important exclusions

The following would not qualify for either of the above allowances:

• Any plant or machinery expenditure incurred or contracts entered into prior to the Budget announcement on 3 March 2021
• Any used and second hand assets
• Cars
• Assets acquired for the purposes of leasing
• Any plant or machinery expenditure incurred under a Hire Purchase agreement or similar contract - these must meet additional conditions to qualify

Anti-avoidance provisions will also be introduced to prevent abuse of the super-deduction, including an exclusion for connected party transactions.

Interestingly, for transactions that took place between 3 March and 1 April, the date the obligation to pay becomes unconditional is a key factor in when the expenditure is treated as 'incurred'. If you have any expenditure that falls into this timeframe, please get in touch with us to discuss whether the super deduction can be applied to your transaction.

Disposals

Please note that when you come to sell the asset in the future, special rules will apply where the super deduction has been claimed. This may result in a potential corporation tax liability and so we would encourage you to get in touch with us first to discuss your plans so we can advise you accordingly.

Tapering the allowance post-April 2023

The allowance will need to be apportioned for accounting periods that straddle 1 April 2023. Please get in touch with us to discuss how this will impact your planned purchase as the rate will need to be apportioned based on the number of days falling prior to 1 April 2023 over the total number of days in the accounting period.

We are here to help...

If you are planning expenditure and are interested in discussing your options further, please get in touch with us on 0121 693 5000 (Solihull Office), 01527 833124 (Bromsgrove Office) or 01675 466344 (Coleshill Office).