The Super Deduction

The ‘super deduction’ is a new enhanced Capital Allowances relief which was announced in the 2021 UK Budget, and allows companies to cut their tax bill by up to 25p for every £1 they invest in qualifying plant and machinery.

Under the super deduction, expenditure incurred between 1 April 2021 and 31 March 2023 that qualifies for main pool relief can be super deducted at 130%. The super deduction only applies to incorporated businesses that are subject to UK corporation tax – it can’t be utilised on expenditure incurred by sole traders and partnerships.

Qualifying expenditure

Although there is no limit to the amount of expenditure that can qualify for the super deduction, there are various conditions around what kind of expenditure can be claimed. Our specialist Construction & Property Incentives team can support you in identifying qualifying expenditure, in line with HMRC regulations such as:

• The super deduction applies to expenditure that qualifies for main pool relief only.
• Any incurred expenditure must be on new and unused assets. Expenditure on second-hand or used assets will not qualify.
• The enhanced relief is not available for expenditure on cars, but is available for commercial vehicles such as vans and lorries.

A comparison of a standard 18% main pool deduction over a ten-year period versus the super deduction is set out below:

Numbers are for illustrative purposes only.

How we can help

The super deduction positions the UK’s Capital Allowances regime as one of the most competitive in the world, but careful consideration should still be given to the wider tax implications of any claims made.

For example, any plant or machinery acquired using the 130% super deduction is likely to face a balancing charge proportional to the level of tax relief acquired. The amount of the balancing charge will depend on the date of the disposal of the plant and machinery and the transitional rules in place at the time.

The timing of the expenditure will also be crucial in maximising the relief. Any expenditure incurred pre-31 March 2023 that is within an accounting period that ends after 31 March 2023 will be subject to adjustment of the 130% super deduction relief and the amount that can be claimed. This could potentially result in the ‘super deduction’ being not so super!

As well as helping you identify qualifying expenditure, our experts have the practical experience and in-depth knowledge to ensure that your super deduction claim is considered in the wider context of your business, so that your overall tax position is optimised.