Capital Allowances – the super-deduction explained

The super-deduction is perhaps the most significant capital allowance incentive ever introduced in the UK. Until 31 March 2023, companies investing in qualifying new plant and machinery can claim a 130% first-year allowance.

This means that for every £10,000 spent, a company can reduce its taxable profits by £13,000, providing an immediate tax saving of £2,470 (at the 19% Corporation Tax rate). It is important to note that the equipment must be new and unused, and certain assets like cars and second-hand machinery are excluded.

What qualifies for the super-deduction?

The relief applies to 'main pool' plant and machinery. This covers a vast array of assets used in the course of business, including computer equipment, servers, office furniture, commercial vehicles (such as vans and lorries), and manufacturing machinery. Crucially, the asset must be bought brand new; second-hand purchases do not qualify and must rely on the standard Annual Investment Allowance (AIA).

The 50% first-year allowance

Alongside the 130% super-deduction, the government also introduced a 50% first-year allowance for 'special rate' assets. This includes integral features of buildings (such as electrical systems, air conditioning, and lifts) and long-life assets. While less generous than the super-deduction, it still allows companies to write off half the cost of these expensive investments in the year of purchase.

Timing your investment

The super-deduction is temporary and only applies to expenditure incurred between 1 April 2021 and 31 March 2023. Furthermore, the contract for the purchase must have been entered into after 3 March 2021. Companies planning significant capital expenditure should review their timelines to ensure they can take delivery and incur the cost before the window closes, maximising their tax savings.