Forget Marvel, Rishi has created the next big super hero!
Or so he wants companies to think!
In recent times we have got used to hearing big bold claims in budget speeches.
But in Mr Sunak’s recent budget speech one phrase did stick out more than others. The ‘Super Deduction!’ Like Marvel, unveiling its latest super-hero film, the government have named their new capital deduction for maximum impact as they expect it to make our capital deduction regime more competitive and to drive growth and investment in ‘productivity-enhancing plant and equipment’.
But what exactly is the Super Deduction?
This is a question I have been asked a lot recently. The first point to note is that this is for companies only, not sole traders or partnerships.
A capital deduction is a mechanism for companies to deduct the cost of assets against their tax bill as depreciation is not a tax allowable expense.
Companies investing in qualifying new plant and machinery assets will be able to claim:
- a 130% super-deduction capital allowance on qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
Basically, this provides a tax deduction for companies to claim equivalent to 25p to every pound spent on qualifying assets. The list of qualifying assets is in the main, what you would have normally claimed capital allowances on, such as:
- Plant & Machinery
- Tooling
- Computer Equipment
- Furniture
- Commercial Vehicles (Vans/Lorries etc.)
For the special rate allowance, assets such as:
- Air-conditioning systems
- Hot and cold-water systems
- Electrical systems, including lighting systems
- External solar shading
- Lifts, escalators and moving walkways
- Space and water heating systems
- Thermal insulation for buildings
It cannot be used for second-hand items or ring fenced trade.
It will be valid from 1st April 2021 till 31 March 2023 and there is no upper limit on how much a company can claim.
Assets bought on finance such as hire purchase agreements will also qualify as long as payments are being made and it is expected the company will own the asset at the end of the lease period.
If you are planning on disposing of the asset before the end of the regime the proceeds on the disposal will be chargeable there are calculations to ensure the tax man can claw back as much of the deduction as possible. You have been warned!
What about the Annual Investment Allowance?
The budget also announced that the temporary increase in the Annual Investment Allowance of £1m has been extended to 31 December 2021 so companies have an opportunity of taking advantage of this extension alongside the upper deduction for any assets that don’t qualify for the new regime.
Conclusion:
2 years might seem like a long time, but it will go by really quickly. To take advantage of this opportunity business owners need to start thinking ahead and identifying where large asset purchases might be needed. Bringing any planned investment forward to take advantage of this regime could help with some large tax savings.
We recommend that if you are planning any major capital expenditure before the end of March 2021, delay it where ever possible to take advantage of the new Super Deduction, and take a serious operational look at your business and its capital asset needs. The next two years will be crucial for investing and maximising the benefit you can get from this new regime.
As ever our experienced team are on hand to help so please get in touch if you have any specific queries about this that you would like to discuss.
Jonathan Graham (Senior Manager)
