I’m sure you’ve heard about the super deduction, the most generous tax incentive for business investment ever offered by the British government. So, what exactly is it?

Well, the super deduction is a 130% first-year allowance that allows companies to cut their tax bill by up to 25p for every £1 they invest. This means that qualifying plant and machinery investments will receive 130% of their cost in allowances, compared to the usual 18% writing-down allowance.

Introduced as part of the Finance Act 2021, this scheme has enabled companies investing in qualifying new plants and machinery to claim back 130% capital allowances on their investments. The super-deduction is available until 16 September 2022 and is a great way for businesses to benefit from significant tax savings while also investing in their operations.

What are Capital Allowances?

Capital allowances are tax relief available to businesses investing in plant and machinery assets. They allow businesses to deduct the cost of these assets from their profits before they pay taxes. Under the super-deduction, companies can claim 130% of the cost of qualifying assets in the first year, compared to the usual 18%.

This makes it the most attractive tax incentive for business investment ever offered by the British government. It’s an incredibly generous offer and one I’m sure businesses will be taking advantage of!

How Does the Super Capital Deduction Benefit Businesses?

The Super Capital Deduction offers a significant boost to businesses that are looking to invest in plant and machinery assets. By allowing companies to cut their tax bill by up to 25p for every £1 they invest, it provides significantly faster tax relief than the usual 18% writing down allowance for main pool plant and machinery investments.

This new relief will allow companies to lower their corporation tax liabilities and benefit from a higher tax deduction in the tax year of purchase. The Super Deduction also provides uncapped tax relief, meaning that businesses can benefit from enhanced capital allowances on qualifying assets without any limitation.

What Types of Assets Qualify?

The Super Capital Deduction is an attractive incentive for businesses as it gives them the opportunity to claim 130% capital allowances on qualifying plant and machinery investments. These include items with a long life, such as computer equipment and servers, integral parts of a building (including lifts, air conditioning systems and hot water systems) and vans, lorries, trailers and other vehicles.

This is only available to companies for expenditure incurred on NEW qualifying assets from 1 April 2021 until the end of March 2023.

It is important to note that you cannot claim the super deduction for any assets that have been second-hand or previously owned. Therefore, it is essential to be aware of the eligibility criteria for the Super Deduction and make sure that you are claiming qualifying assets in order to benefit from this attractive tax relief.

When is the Deduction Available?

The super-deduction is currently available from 1 April 2021 until 31 March 2023, offering businesses two full financial years to take advantage of the 130% first-year capital allowance on qualifying plant and machinery investments. This means that for every pound invested, companies can reduce their taxable profits by up to 25p.

The government has made this temporary change to the capital allowances regime to ensure businesses are able to invest in new equipment and technologies without being weighed down by the cost. The super-deduction is a great way for businesses to gain more value from their investments and reduce their tax bill.

How Does the Super Capital Deduction Work?

The Super Capital Deduction is a great way for businesses to save on their tax bill. It allows them to deduct 130% of the full cost of a qualifying asset from their profits before tax in the year. This means that businesses can cut their tax bill by up to 25p for every £1 they invest in qualifying plant and machinery assets.

To qualify for the super-deduction, the asset must be newly purchased and must be used for business purposes. The super-deduction will be available until 31 March 2023, so businesses should take advantage of this opportunity now if they want to make the most of their investment!

How is the Super Capital Deduction Calculated?

The Super Deduction is calculated by multiplying the qualifying cost of the asset by 130%, and then multiplying the result by the appropriate rate of tax, which is currently 19%. This means that for every pound a company invests in qualifying assets, their taxes are reduced by up to 25p.

For example, if a company has a Main Rate Pool of £2m and a Special Rate Pool of £1m, they would be able to claim a first-year tax saving of £594k ((£2m x 130% x 19%)). It’s important to note that the Super Deduction only applies to new assets, so companies will not be able to claim the relief on existing assets that have already been acquired.

How do I Claim the Super Deduction?

Now that you know what the super-deduction is and what types of assets qualify for it, you may be wondering how to go about claiming it. Fortunately, claiming the super-deduction is relatively straightforward. To qualify for the super-deduction, a company must be within the charge to Corporation Tax.

Expenditure on qualifying assets must also be incurred between 1 April 2021 and 31 March 2023. The company can then claim 130% capital allowances on qualifying plant and machinery investments. To calculate your super-deduction, simply multiply the cost of the asset by 130%. This will give you the total amount of deduction allowed from your profits before tax in that year.

Once you have done this, you can then apply the deduction to your corporation tax bill. With this attractive tax incentive, businesses can receive a significant reduction in their corporation tax bill and make the most of their investments in plant and machinery assets.

What Are the Benefits of the Super Deduction?

The Super Deduction is incredibly beneficial for businesses, as it allows them to reduce their corporation tax bill by up to 25p for every £1 that is invested. This generous allowance gives 130% first-year relief on qualifying plant and machinery assets, allowing companies to write off the cost of certain capital assets against taxable income.

This means that businesses can benefit from a 30% kicker over and above the usual 100% relief, making the Super Deduction a very attractive incentive. This incentive is available until 31 March 2023, so businesses should take advantage of this now to maximise their tax savings.

Read more on gov.uk

Not sure if your accountant is claiming everything for you? Get in touch and see how we can make you Look Beyond the Numbers.