The Capitas quick guide to: Super-deduction Tax relief 2021

In 2021 Spring Budget, the Chancellor announced the introduction of a Super-deduction Tax relief. Here's our guide...

In 2021 Spring Budget, the Chancellor announced the introduction of temporarily increased tax reliefs for the purchase of qualifying assets with the aim of stimulating business investment and promoting economic growth and recovery. We’ve created a quick guide to help you understand the new super-deduction tax.

What is the super-deduction tax?

From 1 April 2021 until 31 March 2023, if you invest in qualifying new plant and machinery assets, you will be able to offset this against taxable profits:

  • a 130% super-deduction first year capital allowance on qualifying plant and machinery investments
  • a 50% first year allowance for qualifying special rate assets

How does it work?

The super-deduction allows you to cut your tax bill by up to 25p for every £1 invested. This provides significantly faster tax relief for qualifying investments, aiding investment and growth.

Who can participate?

If your company pays corporation tax, you can take advantage of this new tax incentive. Straders and partnerships can look to still take advantage of the Annual Investment Allowance (AIA) which is currently set at £1 million and is in place until 31st December 2021.

What expenditure qualifies?

Most tangible capital assets, including energy efficiency and renewable energy technology, used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. The kind of assets that qualify for the super-deduction include but are not limited to:

  • Solar panels.
  • Computer equipment and servers.
  • Tractors, lorries, vans.
  • Ladders, drills, cranes.
  • Office chairs and desks.
  • Electric vehicle charge points.
  • Refrigeration units.
  • Compressors.

Further guidance on qualifying products has yet to be published.

What criteria needs to be met?

Any equipment you invest in must be brand new and not used, and expenditure must be between 1 April 2021 and 31 March 2023, and only for contracts entered into after 3rd March 2021. Assets can be funded via Hire Purchase finance but cannot be leased.

Is there a cap on the level of spend?

Unlike the AIA, there is no limit on the amount of capital investment that can qualify for either the super-deduction tax or the special rate first year allowance.

Example in practice

If, for example, you spend £1 million on qualifying equipment, and decide to claim the super-deduction tax break. When calculating your taxable profits your corporate tax deduction will be £130,000 (130% of the initial investment). Deducting £130,000 from your taxable profits will save your business up to 19% – equating to £247,000.

How can Capitas Finance help?

The information given here is general information only. You should always discuss claims with your professional advisors such as your accountant or tax specialist. If you are looking to purchase assets which qualify for this expenditure, then please get in touch to discuss finance options and solutions.