Corporation Tax – the end of the super-deduction

The 130% super-deduction, which allowed companies to claim a significant tax break on qualifying plant and machinery investments, ended on 31 March 2023.

While its loss is a blow, it has been replaced by 'full expensing' for the next three years (now made permanent). This allows companies to deduct 100% of the cost of qualifying investments in the year they are made, providing a similar, albeit slightly less generous, incentive for growth.

How the super-deduction worked

The super-deduction was introduced to stimulate investment following the pandemic. It allowed companies to claim 130% capital allowances on qualifying plant and machinery investments. This meant that for every £100,000 spent, a company could reduce its taxable profits by £130,000, resulting in a Corporation Tax saving of £24,700 (at the 19% rate).

The transition to full expensing

With the super-deduction gone, the government has introduced 'full expensing'. While it only offers a 100% deduction (rather than 130%), it coincides with the increase in the main rate of Corporation Tax to 25%. This means the actual cash tax saving on a £100,000 investment is now £25,000—slightly higher than under the super-deduction, provided the company pays tax at the 25% rate.

What about unincorporated businesses?

It is important to remember that neither the super-deduction nor full expensing applies to sole traders or partnerships. However, these businesses can still utilise the Annual Investment Allowance (AIA), which has been permanently set at £1 million. This allows them to deduct 100% of the cost of qualifying plant and machinery up to that limit, providing excellent support for most SME investments.