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Can You Benefit From the New Super-deduction Tax Relief?

You may have seen in the recent Budget announcement the introduction of a new super-deduction tax relief. This new temporary tax relief of up to 130% applies on qualifying capital asset investments and will be in place from 1 April 2021 until 31 March 2023.

The aim, according to the Chancellor, is to encourage investment in new plant and machinery and finance expansion in the wake of the COVID-19 pandemic.

However, it is also worthwhile pointing out that as a result of the announcement, if you had plans to make capital purchases between now and the end the month it may be worth considering a delay until 1 April 2021 onward.

Here’s an example of  how this may benefit you.  A company decides to purchase a new piece of machinery for £100,000.

  • if this was purchased on 31 March 2021, the company would be able to claim a deduction of £100,000 resulting in a tax saving of £19,000
  • if the machinery was purchased on 1 April 2021, the company would be able to claim a deduction of £130,000, resulting in a tax saving of £24,700, thus cutting the tax due by 25%.

So how will the new super-deduction work? It will provide a capital allowance of 130% on most new plant and machinery investments that usually qualify for the 18% main rate writing down allowance. In addition, HMRC are providing a first year allowance of 50% on most new plant and machinery investments qualifying for the Special Rate 6% writing down allowances.

As always there are exceptions:

  • contracts entered into before 3 March 2021 even if expenditure is incurred after 1 April 2021 will not qualify
  • second hand assets don’t qualify, the relief is only available on the purchase of new, unused assets
  • expenditure on cars does not qualify, however expenditure on vans will
  • any assets that are acquired for leasing do not qualify

Only companies qualify for the new relief, sole traders and partnerships do not. The new super-deduction is only available to companies within the charge to corporation tax. Unincorporated businesses although unable to benefit from the new rule will be able to continue to claim the Annual Investment Allowance (AIA) at 100% of up to £1million until 31 December 2021.

This change could be of significant benefit to your company and may need forward planning. If you require further information or guidance please get in touch, with either the partner who looks after your affairs or our tax team.

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