09 March 2021
Topics:
Budget
The Super Deduction - Budget 2021
Calling it “the biggest business tax cut in modern history”, the Chancellor Rishi Sunak announced a new “super deduction” for companies who pay Corporation Tax.
What is the Super Deduction?
The super deduction will allow businesses to deduct up to 130% of capital expenditure on most new and unused qualifying plant and machinery and will apply from 1 April 2021 to 31 March 2023 (when the 25% rate of Corporation Tax starts). It will not be available on the purchase of second hand plant and machinery. In addition, the super deduction will not be available for expenditure incurred under a contract entered into prior to 3 March 2021, even if the expenditure is incurred after 1 April 2021. The 130% deduction applies to assets which would be eligible for the main pool capital allowances rate of 18% and is in addition to the extension of the Annual Investment Allowance limit of £1m until 31 December 2021.
So what is ‘plant and machinery’?
Whilst the list below is not exhaustive, it provides an overview of some of the common types of asset that are considered to be plant and machinery: -
- Cranes, drills, ladders
- Vans, lories, tractors
- Printing presses
- The alteration of land but only for the purpose of installing plant or machinery
- Computer servers and equipment
For example, if you purchase a van that is used in your company for £20,000 you will be able to claim a deduction of £26,000 from the company’s taxable income, which represents a saving of 25% from the purchase price*.
As a further example, if a company spends £1m on qualifying investments, it will be able to deduct £1.3m or 130% of the initial investment from its profits. This will save the company £247,000* on its corporation tax bill.
*These are estimates on basic calculations often many factors have to be considered.
If you are considering the purchase of new qualifying plant and machinery it may be worth considering bringing the purchase forward to ensure you take advantage of the 130% deduction.
Haines Watts
If you are considering purchasing assets then please give us a call to discuss when would be the best time to purchase taking in to account the super deduction and any other tax saving opportunities. Tax planning is an essential – check out our tax planning guide here.
If you would like to discuss any of the subjects in this blog please contact us on the details below to find out how we can help you take advantage of any tax saving opportunities.
