Capital Allowances: Super Deduction
Introduction
- This is our approach to all articles.
- In March 2021, the Chancellor, Rishi Sunak, announced two temporary first year allowances to aid economic recovery from the COVID-19 pandemic.
- The undermentioned outlines these allowances.
Guidance
- 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 qualifying plant and machinery investments
- a 50% first-year allowance for qualifying special rate assets
- The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest.
Example One
- A company incurring £1m of qualifying expenditure decides to claim the super-deduction
- Spending £1m on qualifying investments will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits
- Deducting £1.3m from taxable profits will save the company up to 19% of that – or £247,000 – on its corporation tax bill
Example Two
| Previous system | With super-deduction |
| A company spends £10m on qualifying assets | The same company spends £10m on qualifying assets |
| Deducts £1m using the AIA in year 1, leaving £9m | Deducts £13m using the super deduction in year 1 |
| Deducts £1.62m using WDAs at 18% | |
| Deductions total £2.62m – and a tax saving of 19% x £2.62m = £497,800 | Receives a tax saving of 19% x £13m = £2.47m |
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