FINANCE
Sam Jones, Corporate Tax Senior Manager, Kreston Reeves
A NEW SUPER DEDUCTION There were a few surprises in last month’s Budget, one of which was the announcement of a new super deduction! The relief is designed to stimulate business investment in plant and machinery and will be available for qualifying expenditure incurred from April 1st 2021 up to and including March 31st 2023. HOW WILL IT WORK? At present relief for capital investment in plant and machinery is obtained via capital allowances. Capital allowances allow the cost of capital assets to be written down against a business taxable profits. They are available in place of accounting depreciation provided for in financial accounts. The majority of businesses enjoy 100% tax relief in the year of spend via the 100% Annual Investment Allowance which is available for the first £1million of qualifying expenditure (which remains at this level up to December 31st 2021).
The super deduction ❛❛ will provide 130%
allowances on most new plant and machinery acquired by businesses ❜❜
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The super deduction will provide 130% allowances on most new plant and machinery acquired by businesses, which would ordinarily obtain relief at the 18% main rate writing down allowances on a reducing balance basis. The aspect that makes the relief ‘super’ is that the relief obtained is more that the expenditure originally incurred. The Chancellor used the example of a business spending £10million on qualifying plant and machinery, which will be able to obtain a tax deduction of £13million, which is a tax saving of £2.47million in the year of spend. The same expenditure currently would only qualify for the £1million Annual Investment Allowance and a 18% writing down allowance in that year, a tax saving of just under £500,000. A First Year Allowance of 50% is also available for those plant and machinery assets that qualify for the 6% special rate writing down allowances. This allowance isn’t as advantageous as the super deduction but will still be valuable for those investing in updating their premises, specifically on those assets qualifying as integral features.
