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Earlier this year the Chancellor, Rishi Sunak, announced a new ‘super deduction’ to encourage businesses to make additional investments on new qualifying plant and machinery and potentially to bring these investments forward.
What is it?
The super deduction and 50% first year allowance are new reliefs that work alongside the current Annual Investment Allowance on qualifying expenditure between 1 April 2021 and 31 March 2023.
What type of expenditure can be claimed?
The type of expenditure which would qualify for the 130% super is fairly wide. To qualify the capital investment must be new and not used or second hand. Generally new/unused plans and machinery that would qualify for the main rate pool allowance will be eligible to claim. For example, this could include:
New kitchen equipment such as fridges, ovens, mixers;
New computer equipment/servers or tills;
General fixtures and fittings such as tables and chairs;
New security or fire alarm systems
This list is not exhaustive, but is an example of the type of relevant expenditure that could qualify.
Who can claim the Super Deduction?
Unlike the Annual Investment Allowance, the new super deduction only applies to limited companies who pay corporation tax. As such unincorporated business such as sole traders, partnerships or LLPs cannot claim. However, the Annual Investment Allowance (further consideration below) is still available to these businesses.
What level of allowance can be claimed?
The super allowance can be particularly useful for restaurants, bars and hotels, where large value capital items are purchased.
For example, a restaurant spends £100,000 on qualifying plant and machinery as part of a refurbishment and decides to claim the Super Deduction. This will mean the company can deduct £130,000 (130% of the initial investment) in computing it’s taxable profits. With a corporation tax rate of 19% this would result in a saving on the corporation tax bill of £24,700.
Timing
Expenditure must be incurred on or after 1 April 2021 and before 1 April 2023. Expenditure is deemed to be incurred on an asset as soon as there is an unconditional obligation to pay for it. This is usually the date of delivery, but it can in some circumstances be a different date, which will need to be considered if purchases are made close to the deadline of the relief.
For help and advice on all capital allowance claims please contact us.