Making the most of super-deduction tax relief

Super-deduction tax relief

Making the most of super-deduction tax relief

Many UK businesses are already benefitting from the temporary tax relief offered by the super-deduction. However, many more could still be missing out on this vital support.

The super-deduction tax relief scheme was introduced on 1 April 2021 and runs until 31 March 2023. 

It allows firms investing in qualifying plant and machinery assets to benefit from a 130 per cent first-year capital allowance.

This allows companies to cut their tax bill by up to 25p for every £1 they invest. Most companies also benefit from a 50 per cent first-year allowance for qualifying special rate (including long life) assets.

Thanks to the super-deduction, companies can claim allowances of 130 per cent on most new plant and machinery investments that ordinarily qualify for main-rate writing down allowances, such as:

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

Businesses can claim a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for special rate writing down allowances. 

Special-rate investments include:

  • Parts of a building considered integral – known as integral features
  • Items with a long life
  • Thermal insulation of buildings

You must purchase new assets to benefit from the relief, not second hand or refurbished equipment. 

The relief is also only available to incorporated companies. Unincorporated businesses, such as partnerships and sole traders, can benefit from the Annual Investment Allowance (AIA). The AIA permits a deduction of 100 per cent for qualifying plant or machinery expenditure up to the threshold of £1 million until March 2023.

Here is an example provided by HM Revenue & Customs (HMRC) on how the super-deduction works:

  • A company incurring £1 million of qualifying expenditure decides to claim the super-deduction
  • Spending £1 million on qualifying investments will mean the company can deduct £1.3 million (130 per cent of the initial investment) when computing its taxable profits.
  • Deducting £1.3 million from taxable profits will save the company up to 19 per cent of that – or £247,000, which is 19 per cent of £1.3 million – on its Corporation Tax bill.

The AIA remains available alongside the super-deduction for incorporated businesses as well. Organisations must review how they use these schemes together to maximise the tax relief available.

Do you need guidance on how to utilise the super-deduction tax relief? Contact our tax team today. 

Link: Super-deduction