The Chancellor announced a new 130% “Super Deduction” for expenditure on qualifying plant and machinery. This relief will only be available for companies, not sole traders and partnership businesses.
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim a 130% super-deduction capital allowance on their investment in those assets, and a 50% First Year Allowance (FYA) for qualifying special rate assets. The 130% super-deduction for qualifying items will allow companies to cut their tax bill by 24.7p for every £1 spent for the relevant period, even though the corporation tax rate remains at 19%.
Used or second-hand assets will be excluded from the relief as will expenditures on contracts entered into prior to 3 March 2021, even if expenditures are incurred after 1 April 2021.
The 50% FYA for special rate assets will have limited value in 2021 whilst we have a 100% Annual Investment Allowance (AIA) of £1Million until this runs out on 31 December 2021. However, it is more likely to be of benefit for expenditure between 1 January 2022 and 31 March 2023, given that the AIA is currently expected to reduce to £200,000 on 1 January 2022. The short government announcement does not make it clear what qualifying special rate assets are. However, it is not expected that high emission cars will qualify.
For assets that have been claimed under the super-deduction, the disposal value for capital allowance purposes should take the disposal receipt and apply a factor of 1.3, except where disposals occur in accounting periods straddling 1 April 2023, resulting in a factor lower than 1.3. This rule does not apply to the 50% first-year allowance for special rate expenditures. Disposal receipts will be treated as balancing charges (taxable profits), instead of being taken to pools.
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