The new super-deduction tax scheme explained

At the Spring Budget 2021 it was announced that a new temporary first-year allowance, the ‘super-deduction‘, was being introduced into the corporation tax regime. Here’s what we know so far.

Who is eligible for the relief?

The super-deduction is available to most companies. However, unincorporated businesses, such as sole traders and partnerships, will not be eligible for the relief. There doesn’t appear to be any restrictions to prevent larger companies or groups from accessing the relief.

What is the relief?

Companies will be 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 a 12-month accounting period to 31 December 2023.

Are there any restrictions?

Although there doesn’t appear to be a 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 until 1 January 2022). Companies will not 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. Proceeds received for main rate assets may be inflated to 130% to create a balancing charge that will be added to taxable profits.

Special rate assets that have had the 50% super-deduction may also face an apportioned balancing charge when disposed of rather than full proceeds being allocated back to the pool.

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.

Is there anything else I should be aware of?

The new government guidance is still subject to change and there may be finer points that we haven’t been able to cover in this blog.

Visit our dedicated Budget Hub for a summary of the announcements from the Chancellor.

Our Business Tax specialists are ready to advise you on the most effective way to utilise available reliefs and help you recognise tax planning opportunities. Contact us on 01903 234094 to speak to a member of our team.

A version of this blog originally appeared on the website of PrimeGlobal member firm Larking Gowen