Super-deduction allowance announced by the government in their 2021 Spring Budget comes to an end for claims on 31 March 2023.

Kayleigh Wilson, Tax Manager at Stephenson Smart, highlights that if you are a company that is looking to purchase new plant and machinery you may want to take advantage of this allowance before it ends.

What is super-deduction allowance?

Super-deduction works alongside the Annual Investment Allowance and gives 130 per cent deduction against the purchase of new plant and machinery.  However, it is only applicable to companies and for the purchase of new equipment.

Unlike the Annual Investment Allowance, there is no upper expenditure limit on super-deduction.

Example:

Purchasing a new tractor for 100,000 pounds.

Annual Investment Allowance – 100 per cent deduction = 100,000 pounds.

Corporation Tax at 19 per cent = tax saving of 19,000 pounds

Super-deduction – 130 per cent deduction = 130,000 pounds

Corporation Tax at 19 per cent = tax saving 24,700 pounds

As illustrated above, under the temporary super-deduction your company could gain an additional tax saving of 5,700 pounds.

What is Annual Investment Allowance?

Annual Investment Allowance gives 100 per cent deduction against business profits for the purchase of qualifying plant and machinery.

The current expenditure limit is 1 million pounds. It was announced in the 2022 Autumn Statement that this would remain at this level indefinitely.

Any expenditure in excess of this limit goes into a Main Pool or Special Rate pool for tax purposes and attract Capital Allowances at either 18 per cent or 6 per cent per annum.

There is also a 50 per cent first-year allowance for assets that would ordinarily qualify for the Special Rate Pool. However, if you have any remaining Annual Investment Allowance to use you should utilise that first to get 100 per cent deduction rather than 50 per cent deduction.

Do vehicles qualify for super-deduction?

Commercial vehicles such as lorries and vans do but cars do not. However, electric cars still qualify for the 100 per cent First Year Allowances.

Planning and timing are key to making the most of super-deduction and the Annual Investment Allowance. At Stephenson Smart we can help you get this right, please get in touch if we can support you with this.

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