Capital Allowances - Super-deduction

 

The super-deduction, introduced by the government is primarily as a result of the Covid-19 pandemic whereby the HM Treasury have stated that existing low levels of business investment have fallen and this has played a significant part in the slowdown of productivity growth since 2008 in the UK. 

 

A 50% first-year allowance for qualifying special rate (including long life) assets (which before would attract a 6% special rate 'pool' writing down allowance) 

A 130% super-deduction first year capital allowance on qualifying plant and machinery until 31st March 2023 for Companies 

 

 

♦ The super-deduction gives an enhanced 130% capital allowance for Companies in respect of qualifying expenditure on plant and machinery which may have normally qualified for an 18% writing down tax allowance. 

With the super-deduction scheme heading towards the final year, now is a good time as any to review short-term capital expenditure intentions, especially in light of the covid-19 pandemic with any losses accrued *(due to the extended loss carry back provisions). PLEASE NOTE - The timeframe is short, as the loss provisions expire on the 31st March 2022 and therefore this option is only available from the 1st April 2021 to 31st March 2022. 

 

The timing of expenditure is important, especially whereby accounting periods span the 31st March 2023 as the super-deduction does not always mean 130% relief, as disposals can produce significant balancing charges. By informing of intentions for the asset and type of asset purchased i.e. if it is likely to be sold quickly (as balancing charges can be triggered), then consideration for the best tax relief can be given by claiming AIA or the super-deduction allowance. 

 

Of importance is the impact of the accounting date relating to acquisitions and disposals. The super-deduction is available for the two financial years ending 31st March 2023, but the rate is impacted by the Company accounting date. The rate is reduced where an accounting period straddles the 31st March 2023. Meaning the super-deduction rate can fall below 130% for expenditure incurred before the 31st March 2023, if the accounting period ends after 31st March 2023. Consideration is also needed for when the asset is disposed of,  for which the super-deduction allowance has been claimed on. Ideally this should be factored in from the outset, as the sale of  the super-deduction asset leads to an immediate tax charge. By carefully timing the disposal of assets can significantly affect the amount and timing of the balancing charge. The impact will depend on Corporation tax rates and in the future with Companies in the small profits / marginal rate relief bracket, whereby particularly affected by early disposals. 

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