Super Deduction - 130% Allowance

Written by Roulon du Toit

We mentioned this in the June newsletter, but we thought it will be worth expanding on this topic a little more.

Time frame	Expenditure incurred from 1 April 2021 to 31 March 2023. Contract must have been entered into after 3 March 2021.
Annual Investment Allowance	Most of these assets would already qualify under the annual investment allowance – 100% claim. The AIA is currently limited to £1 million. It is thus better to claim the “super deduction” of 130%.
What assets qualify	“Qualifying” plant and machinery. The assets must be new (not 2^nd hand) Assets must qualify for the 18% main pool rate (most items of plant and machinery) There is no cap on the amount of capital investment
Which assets do not qualify	2^nd hand assets (they still get the usual allowances) Assets which do not form part of the 18% main pool, such as Cars Items with a long life (25 years or more) “integral features” of a building such as lifts, water heating, air-conditioning, electrical systems buildings Assets which the company purchased in order to lease it
Impact on tax when purchased	For every £1 invested, a company saves 25p in taxes. Example: Company buys machinery for £1 000. The tax deduction is £1 000 x 130% = £ 1 300. Tax saving: £1 300 x 19% = £247 So tax saving per amount invested: £247/£1 000 = 24.7%
Disposal	The disposal of the asset will use the actual expenditure incurred as the “cost” of the asset. However, if the taxpayer claims part of the asset’s cost under the “super deduction” and part of it under the “annual investment allowance” then there could be a balancing charge.