In the recent budget the Chancellor announced a new super-deduction, below is a brief summary of the new rules:
From 1 April 2021 to 31 March 2023 the new super-deduction has been introduced for expenditure on ‘new and unused’ plant and machinery that qualifies for plant and machinery allowances.
- Plant and machinery qualifying as main pool expenditure will be eligible for the 130% super-deduction. For most plant and machinery qualifying as special rate pool expenditure, this will be eligible for the 50% SR allowance.
- These new allowances are only available to companies subject to corporation tax (not individuals, partnerships or LLPs) and only where the contract for the plant and machinery (including fixtures installed under a construction contract) was entered into after 3 March 2021.
- These allowances are uncapped and are in addition to the Annual Investment Allowance (‘AIA’) which is still also available to businesses and groups until 31 December 2021.
- The FYAs legislation within Finance Bill 2021 does not allow for expenditure on long life assets, cars or for plant and machinery acquired for leasing, including plant and machinery leased with property, to be claimed under these new allowances.
- Therefore, property investors, landlords and any groups with property company structures will not have the entitlement to claim the new ‘super-deduction’ and ‘SR’ allowance.
- There are also some important areas around future disposals and balancing charges to consider before claiming (although there may be potential to mitigate these) and the new allowances could provide a big cash flow incentive for investment, if claimed correctly.
An example, if a qualifying company purchased eligible plant for £100, it would be entitled to an allowance of £130, which would save corporation tax of £24.70 (19%).