In an attempt to boost the post-pandemic economy, the super deduction tax rate and special rate allowance were introduced to encourage businesses to invest and boost productivity. These reliefs provide a much higher tax deduction for qualifying equipment in the tax year of purchase than would normally occur.
However, these reliefs are coming to an end…
How do these reliefs work?
From 1 April 2021 to 31 March 2023, companies investing in qualifying new plant and machinery can claim a:
- 130% super deduction capital allowance on qualifying plant and machinery investments
- 50% first-year special rate allowance for investments on qualifying assets
The super deduction allows companies to cut their tax bill by up to 25p for every £1 they invest.
Both reliefs are only available to companies subject to corporation tax; this excludes individuals, partnerships or Limited Liability Partnerships.
What ‘plant and machinery’ qualifies?
To claim either allowance, the plant and machinery must be new and unused.
Expenditure on assets such as work vehicles (not cars), solar panels, fire prevention systems, security systems, carpets, computer equipment, construction equipment, office furniture, refrigeration units all qualify.
Plant and machinery expenditure which is subject to hire must meet additional conditions to qualify.
There are a number of situations where no reliefs are allowed for the super deduction or special rate allowance. For a comprehensive summary of when these disqualifications apply, please take a look at the information on the government website.
What actions should you consider?
If your company is looking to make new, eligible capital expenditure, it would be worth considering purchasing the asset before the 1 April 2023 to benefit from the additional capital allowance deductions.
Burton Sweet can assist you in identifying whether your purchase would qualify under the super deduction rules.