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What you need to know about the super-deduction tax break

| Duncan & Toplis | 6 May 2021

Billed as the biggest two-year tax cut in modern British history, the super-deduction has been launched to encourage businesses to invest and grow.

The new tax break allows companies to deduct 130% of the cost of any qualifying investment from their taxable profits - meaning that for every £1 invested, businesses can reduce their tax bill by up to 25p.

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets can claim the 130% super-deduction in capital allowance and a 50% first year allowance for qualifying special rate assets.

The Office for Budget Responsibility reports this could unlock £20 billion a year by encouraging firms to invest in productivity-enhancing assets to help them grow.

This was one of the biggest announcements from the Chancellor’s Budget this year but there are some key conditions which will limit eligibility:

  • Assets must be new and unused plant and machinery purchased between the start of this financial year and 31 March 2023
  • The super-deduction only applies for assets that otherwise qualify for the 18% main rate writing down allowance
  • It does not apply to expenditure in the final year of trading
  • It does not apply to expenditure on cars, most life-long assets or plant and machinery that’s used for leasing.

With a clear end date, this may encourage companies to bring forward planned investments to before 31 March 2023. However, we would urge an element of caution because, from 1 April 2023, the rate of corporation tax will increase from 19% to 25% for companies which make profits of £250,000 or more.

It is surely no coincidence that 130% of 19% is almost equal to 25% (24.7%). This means that, if a company brings forward a planned investment to capitalise on the super-deduction, the potential saving could be negligible, provided the £1m annual investment allowance limits continue in future, as expected. For companies which aim to invest more than £1m however, the super-deduction could be well worth the cost of bringing forward planned investments.

For more information on the super-deduction, visit the government website.

If you would like professional advice or guidance in relation to the super-deduction, please contact our team.

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