Back in Westminster’s Spring Budget on 3 March 2021, UK Chancellor Rishi Sunak announced a ‘super-deduction’ to encourage directors to invest.
This offers no upper monetary limit, few exceptions, and it’s a rate of capital allowances relief that exceeds 100% for the first time.
As well as aiming to facilitate business investment, the measure aims to boost productivity and aid the UK’s post-COVID economic recovery.
Even before the pandemic, low levels of UK business investment had a direct impact in the slowdown on productivity growth since 2008.
The pandemic served to compound that further, with business investment falling 11.6% between Q3 2019 and Q3 2020.
“Making capital allowances more generous works to stimulate business investment,” HM Treasury said earlier this year. “As a result, these measures can promote economic growth and counter business cycles.
“The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.”
What is the ‘super-deduction’?
If your company invests in qualifying new plant and machinery assets before 31 March 2023, you will receive a 130% first-year capital allowance.
Ordinarily, these would qualify for the main writing-down allowance of 18%, so you can see the incentive from a tax perspective.
This effectively enables you to reduce your corporation tax bill by up to 25p in every £1 you invest in purchasing these qualifying assets.
For example, if you were to invest £10 million in qualifying assets, you could deduct £13m in the first year. This would result in you saving £2.47m on tax, compared to £497,800 without the super-deduction.
Your company can also benefit from a 50% first-year allowance for investing in qualifying special-rate assets, including long-life ones. Usually, these would be eligible for a writing-down allowance of 6%.
The Office for Budget Responsibility called the super-deduction the “most significant contributor to the economic recovery measures”, and predicted it will boost business investment by approximately 10%, or £20bn a year.
Keep accurate records
Good record-keeping is absolutely essential if you plan to bring forward investment plans within your company before the temporary regime ends.
Bear in mind that if you dispose of the asset before 31 March 2023, it could cost you more in tax than the deduction initially saved you.
Keep track of the assets you buy and ensure you have the correct figure for us to put into your tax computations if you dispose of those assets.
Ensure you plan ahead
Given the tax break has a limited shelf life and that deciding whether or not to invest in plant and machinery can take time, start planning now.
If you are thinking about making any investment decisions in plant and machinery, consider expediting them to fully use the super-deduction.
Our corporate tax-planning service can certainly help you make those decisions. Get in touch by emailing firstname.lastname@example.org or calling 0141 221 2257 to find out how we can help.