Capital Allowances Super Deduction

The recent Budget has introduced what can only be described as one of the most generous capital allowance regimes ever seen in the UK. Capital allowances have always been promoted to encourage companies to invest in new equipment. The other major factor has been the amount of investment covered by this new super allowance.

10 years ago, the figure covered only 50K of equipment and had fallen to £25K at one point. However, the government has increased this and, in the process, increased to £250,000 and then £500,000. Both very generous. Now that figure is £1m!

So, we have both a super allowance and it can be applied to a lot if not all of a company’s investment in qualifying equipment. Detailed below are the key points that will help you decide whether you can benefit from this new policy initiative.

• For expenditure incurred from 1 April 2021 until the end of 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.
• This change makes the UK’s capital allowance regime more internationally competitive, lifting the net present value of our plant and machinery allowances from 30th in the OECD to 1st.

The new Capital Allowances offer

As a result of measures announced at this Budget, businesses will now benefit from four significant capital allowance measures:

• The super-deduction -which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023 for companies
• The 50% first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023 for companies
• Annual Investment Allowance (AIA) providing 100% relief for plant and machinery investments up to its highest ever f 1 million threshold, until 31 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

Why is the government introducing a super-deduction?

• Since the Covid-19 pandemic, existing low levels of business investment have fallen, with a reduction of 11.6% between Q3 2019 and Q3 2020.
• Much of the UK’s productivity gap with competitors is attributable to our historically low levels of business investment compared to our peers. Weak business investment has played a significant role in the slowdown of productivity growth since 2008.
• Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles.
• The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.

We trust you found this useful, but we will only be too happy to talk through any opportunities or questions you might have regarding this article.

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