In March 2021, as the country was emerging from the economic damage wrought by the covid-19 pandemic, the chancellor unveiled a budget intent on protecting jobs and boosting economic growth. Within this budget were several measures designed to increase business investment, with the aim of improving productivity metrics through innovation.
Among these measures is arguably the most generous capital allowance ever announced by a UK government: the ‘super-deduction.’
What is the super-deduction and how does it work?
The super-deduction is a capital allowance that permits 130% of the cost of applicable plant and machinery to be deducted from pre-tax profits. For every pound of capital investment made, the super-deduction could return up to 25p in the form of corporation tax relief. Ordinarily, the investments eligible for the super-deduction would only benefit from an 18% ‘writing down allowance,’ so it’s not hard to see how generous the super-deduction really is.
The super-deduction capital allowance is a temporary measure, relevant only to eligible capital investments made between 1 April 2021 and 31 March 2023, so you’ll have to move quickly to take advantage of the generous tax relief on offer.
Example scenario
- A company invests £100,000 in its IT infrastructure.
- Under the super-deduction, this investment plus 30% can be deducted from its taxable profits: £130,000.
- This deducted amount would ordinarily be subject to 19% corporation tax, but thanks to the super-deduction this is avoided.
- Therefore, the super-deduction tax saving is £130,000 x 19% = £24,700
What kind of investments does the super-deduction apply to?
The super-deduction applies to all ‘plant and machinery’ listed as ‘main rate pool’ assets by HMRC. Such assets include (but are not limited to):
- Work vehicles (tractors, lorries and vans)
- Office furniture
- Computers, servers and networking equipment
- Computer Software
- Solar panels and other renewable energy appliances
- Construction machinery (excavators and bulldozers)
- ‘Integral features’ of a building, such as fire alarms, security systems, lifts and some electrical systems (structural/decorative elements are not eligible)
Only plant and machinery purchased new and unused is eligible for the super-deduction, but there is no upper limit to the value of eligible investments, so the tax savings could be very substantial.
Should I bring forward planned IT investments to take advantage of the super-deduction?
Ideally, yes! There is no guarantee that a similarly generous capital allowance will return again in the near future, as the super-deduction was part of a response to possible the most economically-disruptive events of our lifetimes: the covid-19 pandemic.
With the scheme set to end at the end of March next year, why not invest in new desktops, mobile devices, networking equipment or server infrastructure now to take advantage of the relief on offer, and set your employees up for a productive 2023 with the latest technology at their disposal.
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