What’s the crack with the super-deduction? what can i use it on?

March 18, 2021|In KRW Q&A|By Keith Witchell

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.

Keith Witchell