Posted: 16 / 04 / 2021
What is the super-deduction?
In his Budget speech on 3 March 2021, the Chancellor announced a new “super-deduction” which allows companies to claim up to 130% deduction against profits for any new and unused plant and equipment purchased between 1 April 2021 and 31 March 2023. Second-hand equipment will not qualify.
The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest (rather than by 19p under the previous rules). It is designed to encourage companies to invest in plant and machinery assets that will help them grow and to make those investments now.
Some examples of new plant and equipment that the super-deduction will apply to are:
- Commercial vehicles such as vans and lorries
- Computer equipment
- Office furniture
- Kitchen equipment in pubs and restaurants
- CCTV equipment
- Shop fittings
- Racking etc. in warehouses
Unfortunately, cars (even electric cars) do not qualify for the super-deduction.
Who is eligible to claim?
Super-deduction can only be made by entities subject to corporation tax so this means that sole traders, LLPs and partnerships will miss out.
Although qualifying purchases can be made between 1 April 2021 and 31 March 2023, a hybrid rate is used instead of 130% where a chargeable period straddles 1 April 2023. The hybrid rate is calculated as follows:
- Divide the number of days before 1 April 2023 by the total days in the accounting period.
- Multiply that amount by 30%.
- Add 100% to the result.
- Worked Example – Year ending 30 June 2023 where £100,000 qualifying expenditure was made on or before 31 March 2023.
- 274 days before 1 April 2023 divided by 365 days in the year to 30 June 2023
- Multiple 1) by 30% = 22.52%
- Add 100% to 2) = 122.52%
- The qualifying deduction is therefore, £122,520 (122.52% of £100,000). If the full rate of 130% was available, the qualifying deduction would be £130,000.
Disposal of super-deduction assets
There are also additional rules in the draft legislation for how the disposal proceeds are calculated where super-deduction has been made and again it is dependent upon the entity’s chargeable period. The deemed disposal proceeds for corporation tax purposes would be as follows:
- Period ending on or before 31 March 2023 – 130% x actual proceeds;
- Period straddling 1 April 2023 – Hybrid rate (see time apportionment section) x actual proceeds;
- Period starting after 1 April 2023 – 100% x actual proceeds
Given that spending within the qualifying timeframe does not guarantee the full rate of super-deduction, we would recommend that you start planning your capital expenditure now so that you can maximise your super-deductions entitlement.