Have you heard about the Super-Deduction Tax yet?

Have you heard about the Super-Deduction Tax yet?

The Government has offered unprecedented support for businesses during Covid. Even so, pandemic-related economic shocks and the accompanying uncertainty have chilled business investment. Therefore, in the 2021 budget, the Government introduced a super deduction tax for businesses.

Until 31 March 2023, 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, and a 50% first-year allowance for qualifying special rate assets.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

This super-deduction will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now.

Why is the Government introducing a super-deduction tax?

Much of the UK’s productivity gap with competitors is attributable to our historically low levels of business investment compared to our peers. Weak business investment has played a significant role in the slowdown of productivity growth since 2008. Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles. The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.

What types of businesses will benefit?

Companies that pay corporation tax and invest in qualifying plant or machinery from 1 April 2021 until 31 March 2023.

Sole traders and partnerships, including limited liability partnerships, cannot benefit under this new rule and will continue to be able to claim the capital allowances at 100% of up to £1m under the annual investment allowance.

What assets qualify for this tax allowance?

New and unused plant & machinery assets. These can be funded by a Hire Purchase agreement, subject to meeting additional conditions. However, leased equipment does not qualify under the scheme, as ownership of the asset forms part of the qualification criteria.

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment

How Sapphire can help?

Our tax experts help you understand your tax liabilities, so you can rest easy.

If you’re an established SME, a busy entrepreneur, or a start-up, contact us to explain what you’re looking for and we’ll be clear how we can help you. Speak to a member of our team today.