The super-deduction, announced in the 2021 Spring Budget, offers businesses a window of opportunity to make corporate tax savings on their investment in plant and machinery.
However, the benefits of the super-deduction could be reduced due to a lesser-known clause within this popular new capital allowance scheme.
What is the super-deduction?
The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest in plant and machinery.
When translating accounting profits into taxable profits, incorporated businesses can deduct capital allowances after adding back related depreciation.
The super-deduction applies to certain capital investments made between 1 April 2021 and 31 March 2023, offering a capital allowance rate of 130 per cent on plant and machinery expenditure.
This works alongside the Annual Investment Allowance (AIA), whose limit was extended to £1 million until 31 March 2023.
What is the risk that companies face?
Unbeknownst to many potential users of this capital allowance scheme, where a company invests in eligible plant and machinery and receives tax relief, but then disposes of it before April 2023 when the CT rate increases, they need to add a surplus of 30 per cent to disposal proceeds.
This need to be done when computing Corporation Tax following the disposal of the asset and may be on a pro-rata basis, depending on the timing of the disposal.
Given the potential impact of this clause within the legislation, businesses should seek advice before making a claim to ensure their plans for plant and machinery investment doesn’t result in the loss of tax relief.
We are already assisting many businesses with the super-deduction scheme and are happy to advise you.
For advice on the super-deduction capital allowance – contact us.