What’s the crack with the super-deduction? what can i use it on?
Rishi Sunak certainly bigged up the new super-deduction in the Budget earlier this month, prompting many clients to get in touch to see how they can benefit from it.
So here’s my whistle stop tour, explained through some key questions we’ve been asked:
When does it kick off? It applies to assets purchased from 1 April 2021 to 31 March 2023.
Can all businesses benefit? No, only limited companies.
Do I really get 130% of what I spend back as a tax saving? Nope. Yes I know it sounded like that in the speech! You actually get 19% Corporation Tax relief on 130% of what you spend. So 24.7% tax relief on new asset purchases as opposed to the normal 19%.
That’s still good though right? Yes absolutely. It sounded better than it was, but it’s still a valuable relief, which is welcomed.
What types of assets can I use the super-deduction on? Plant and machinery, vans, commercial vehicles, and computer/office equipment.
So not cars then? No, unfortunately not.
Not even electric cars? Still no. But for electric cars and hybrids emitting up to 50g/km a 100% first year allowance can still be claimed which is separate to the Annual Investment Allowance and allows 19% Corporation Tax relief on the purchase cost of a brand new vehicle, even if on finance. So this is still well worth considering, especially alongside very low company car benefit in kind rates.
Do only brand new assets qualify? Yes. Second-hand assets get normal capital allowances without the super-deduction enhancement.
How does it differ to the Annual Investment Allowance? The Annual Investment Allowances allows businesses a 100% tax write down for plant and machinery and other asset purchases of up to £1m per annum. This continues to apply (until at least 31 December 2021) and can be used on second-hand asset purchases. This means 19% Corporation Tax relief on these assets.
If I’m buying an asset that will qualify, should I wait until April? In most cases yes as you will then get more tax relief for it. This goes against the grain of my usual call to action to get things purchased before the year end for those with a 31 March financial year who are trying to get their tax bill down! But it does make sense to hold fire if you can.
For further advice on this please don’t hesitate to contact me.
Key Facts
- Super-deduction applies to asset purchases from April 2021 to March 2023
- It gives 24.7% tax relief on such purchases, vs the usual 19% tax relief
- It applies to plant and machinery, commercial vehicles, computer & office equipment
- It only applies to brand new assets; second-hand ones still get the Annual Investment Allowance
- Delay CAPEX on qualifying assets until April if you can to benefit from the enhanced tax relief
For further advice on this matter, please contact me.
Related Posts
Cash ISA allowance will be reduced from £20k to £12k from April 2027
n a bid to encourage more people to save into stocks and shares, the current £20k per annum allowance for investing in ISA will be restricted to £12k per annum for investment into a cash ISA.
Mansion tax for homes worth over £2M from April 2028
As expected, a new High Value Council Tax Surcharge was announced which will kick in from April 2028 and apply to homes worth over £2m.
100% CGT relief for shares sold to employee ownership trust halved
Under current rules, if you sell more than 51% ownership of your business to an Employee Ownership Trust then there is a 100% relief, and no Capital Gains Tax has to be paid on the sale.
Permanent rates reduction for hospitality, retail and leisure
Two new, lower, multipliers will be introduced for these sectors from April 2026, in a bid to permanently reduce business rates for affected businesses.
NIC to apply to salary sacrifice pension arrangements from April 2029
As widely anticipated in the lead up the Budget, it was today announced that NIC will apply to pension contributions from April 2029, but only insofar as there will no longer be an NIC saving for employees and employers that sacrifice more than £2k pa of their salary to pay into a pension.
Mileage based electric/hybrid vehicle excise duty from April 2028
It was today announced that the government are introducing a new Electric Vehicle Excise Duty (eVED) from April 2028 which will impose a charge of 3p per mile.
100% first year allowance for new electric cars extended to March 2027
The Budget documents confirm that the current 100% capital allowance that applies to the purchase of new electric vehicles and charge points will be extended for a further year until 31 March 2027.
New first-year allowance of 40% for main rate assets from January 2026
It was also announced today that the government will introduce a new 40% first-year allowance for the purchase of main rate assets, to encourage investment, although this does not include the purchase of cars or second-hand assets.
Main rate writing down allowance reduced from 18% to 14%
Currently, assets which are not eligible for the Annual Investment Allowance or First Year Allowances, including hybrid cars, and second-hand electric cars, are subject to the main rate writing down allowance of 18% per annum.
£1M inheritance tax relief for business/agricultural assets will transfer
The Labour government announced last year that the current 100% Inheritance Tax relief for shares and other business/agricultural assets will be restricted to £1m from April 2026 and, unlike other Inheritance Tax allowances, it would not transfer between spouses.