13th May, 2021, Kerry Williams
In this article and video Kerry Williams, Associate Director at our Great Yarmouth office, explains the new super-deduction and how it works alongside the Annual Investment Allowance.
What is super-deduction?
The chancellor announced the new super-deduction allowance in the spring Budget.
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.
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
Also announced was 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.
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 until 31 December 2021 when it will drop to 200,000 pounds.
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.
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.
Profile: Kerry Williams ACA CTA
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