Capital Allowances – what is the new “super-deduction” tax break and how does it work?

crane - super deduction

In the 2021 Spring Budget, the Chancellor announced a number of significant changes to the Capital Allowance system.

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

This deduction will allow companies to potentially reduce tax payable by 25p for every £1 invested in eligible plant and machinery.

Mr Sunak said the move constitutes the “biggest business tax cut in modern British history”. He said: “Right now, while many businesses are struggling, others have been able to build up significant cash reserves. We need to unlock that investment, we need an investment led recovery.”

What are capital allowances?

Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax-deductible. Businesses deduct capital allowances when computing their taxable profits

What qualifies as plant and machinery?

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.

The kind of assets that qualify for the super-deduction include but are not limited to:

Are there any exclusions?

The measures announced will not apply to qualifying expenditure on “second hand” or “used” plant and machinery or expenditure incurred in respect of a contract entered into prior to 3 March 2021. Any companies that have already contracted for the provision of plant and machinery will only be able to claim capital allowances at the normal standard rates.

If you have any questions or need advice on any of the above, then please do not hesitate to contact us.

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