The Super-Deduction is a scheme aimed to help agriculture and manufacturing businesses through the aftermath of COVID. The Super-Deduction scheme was announced by the previous Chancellor, Rishi Sunak, in the 2021 UK Budget. The scheme has helped thousands of businesses not only improve their infrastructure and equipment, but also their tax bills.
For expenditure incurred from 1st April 2021 until the 31st March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments. Under the Super-Deduction, for every pound a company invests, their taxes are cut by up to 25p.
As well as the Super-Deduction scheme, the government also introduced three further capital allowance measures which will benefit businesses. These are:
- The 50% first-year allowance (FYA) for special rate (including long life) assets until 31st March 2023 for companies.
- Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever £1 million threshold. This has now ended as of 31st December 2021.
- Within Freeport tax sites, companies can access new Enhanced Capital Allowances (ECA+) and companies, individuals and partnerships can benefit from an increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026
What Is The Super-Deduction?
The Super-Deduction is a tax scheme wherein businesses will be able to claim back 25p for every £1 spent on plant and machinery investments. This worked out as a huge injection boost for an industry which has seen drastic implications as a result of the COVID-19 pandemic.
It will enable businesses who use a wide range of machinery, such as factories and construction firms, to save huge sums of money in tax revenue whilst also encouraging them to acquire plant and machinery investments in order to generate more productivity and potential custom. For example, A company incurring £1m of qualifying investments expenditures can decide to claim the super-deduction. This means the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits. This will result in saving the company 19% of that £1.3m (£247,000) on their corporation tax bill.
The scheme has been under revision from the government consistently and is scheduled to come to an end on 31st March 2023. That means that any businesses wishing to take advantage of the scheme need to do so immediately. At Nordens, we pride ourselves on supporting businesses through the challenges of the past few years, and the Super Deduction scheme is an incredible measure which can really help out businesses not only financially but also operationally. We’d be happy to assist you in applying for the Super Deduction, so please get in touch with our Client Success team, at firstname.lastname@example.org, to discuss this further.
Who Has The Super-Deduction Affected?
The Super-Deduction scheme has largely affected businesses of all shapes and sizes, across a variety of industries. The companies most affected are from the agricultural and manufacturing sectors, who acquire plant and machinery products for business consumption.
According to the HM Treasury, most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the super-deduction or the 50% First Year Allowance include, but are not limited to:
- Solar panels
- Computer equipment and servers
- Tractors, lorries, vans
- Ladders, drills, cranes
- Office chairs and desks,
- Electric vehicle charge points
- Refrigeration units
- Foundry equipment
Why Did The Government Introduced The Super-Deduction?
The UK government introduced the Super-Deduction scheme to combat the rapid decline in business investment due to the pandemic. From Autumn 2019 to Autumn 2020, there was an 11.6% drop in business investment. This decline in business investment has actually gradually fallen since 2008, with a slowdown of productivity growth as a whole across all sectors.
The government’s thinking was that making capital allowances more of an attractive proposition will stimulate investment and economic growth. As well as this, according to the OECD, the Super-Deduction scheme will make the UK’s capital allowance regime more internationally competitive and lift the value of plant and machinery allowances from 30th to 1st in the OECD nation table. This was aimed to attract more international and overseas traders to invest in plant and machinery.
We hope this has outlined to you exactly what the Super Deduction scheme is and when the scheme will end. If you require any more information on any government COVID-19 announcements, loans and grants, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.