Corporation Tax 'Super Deductions' - all you need to know and how your company could benefit

As part of the March 2021 Budget, Chancellor Rishi Sunak announced a new capital allowance super-deduction and first year allowance. The measures apply to capital allowances claimed as part of a corporation tax return.

How will the new 'super-deduction' and first year allowance apply to my business?

The new “super-deduction” and first year allowances will apply to companies filing corporation tax returns.

In short, the new measures will increase the amount of capital allowances that can be claimed thereby reducing corporation tax liability for companies that qualify.

How do the measures work?

For expenditure incurred between 1 April 2021 and 31 March 2023, companies can claim a 'super-deduction' in the form of a first-year relief of 130% on new plant and machinery fixed assets that would ordinarily qualify as 'main rate pool additions' with a writing down allowance of 18%.

In addition, for expenditure incurred between 1 April 2021 and 31 March 2023, companies can claim a first-year relief of 50% on new plant and machinery fixed assets that would usually qualify as 'special rate pool additions' with a writing down allowance of 6%.

Can you give me examples of types of new fixed assets that will qualify?

For the 130% 'super-deduction' examples of qualifying assets include (but are not limited to); vans and lorries (not cars), machinery, tools, furniture, computers and other IT equipment, toilets and kitchen facilities.

For the 50% first year allowance examples of qualifying assets include (but are not limited to); space and water heating systems, electrical systems, air-conditioning systems, lifts and escalators.

Is there a limit to the amount that can be claimed?

No, there is no limit on the number of new fixed assets or the total deduction claimed.

Do the measures affect asset disposals?

Assets disposed of before April 2023 will incur an additional balancing charge to recoup the additional super-deduction claimed.

What is the purpose of the measures?

The intention is that the 'super-deduction' will give companies a stronger incentive to bring forward planned investment in new machinery and equipment. It is hoped this investment will increase productivity and strengthen the UK economy.

Can Sole Traders or Partnerships benefit?

The measures do not apply to individuals trading as sole traders or in partnerships.