Super-Deduction is a government tax relief initiative which allows UK businesses who pay corporation tax to write off the cost of certain capital assets against taxable income. Capital allowances can be of significant benefit to your business as they allow you to reduce the level of corporation tax you pay.
You are eligible for Super-Deduction if:
- Your business pays Corporation Tax
- You are a UK business
- You must be a Ltd. Company to benefit from Super-Deduction
- Purchase qualifying plant and machinery assets.
Individuals, Partnerships and Limited Liability Partnerships may be eligible for the Annual Investment Allowance.
Assets that qualify for the Super-Deduction include:
- Commercial vehicles including HGVs, vans and tractors, but excluding cars
- Construction equipment e.g. cranes and diggers
- Tools and machinery
- IT and office equipment.
Assets that are ineligible for capital allowances include:
- Buildings and structures
- Used or second hand assets
- Assets held for leasing.
The new Super-Deduction scheme was announced in the UK 2021 budget. The following information is accurate as of 26th April 2021 and has been checked against UK Government/HMT sources.
Before the 2021 Budget, what were the existing Capital Allowance Schemes?
The two main types of capital allowances for Plant & Machinery were the Annual Investment Allowance (AIA) and Writing Down Allowances (WDA):
- You can deduct the full value of an item that qualifies from your profits before tax – this would mean 100% of capital expenditure on the asset, up to the value of £1 million.
- The First-Year WDA of 18% (main rate) and 6% (special rate) can be claimed in addition to the annual investment allowance – they do not count towards your AIA limit.
What are Writing Down Allowances and when can they be used?
Writing Down Allowances (WDA) are capital allowances that can be claimed if you have already used the AIA on items worth a total more than £1m or if the items do not qualify for AIA.
Writing down allowances deduct a percentage of the value of an item from your taxable profits each year. The deduction percentage depends on the item.
What is the difference between “Main Rate” and “Special-Rate” assets?
The “Main Rate” is a pool of assets containing most Plant and Machinery. The Special Rate is a pool of assets that do not qualify for the Main Rate, and these include; parts of a building considered integral, items with a long life, and thermal insulation of buildings.
I ordered a piece of machinery for my business on the 1st of March 2021 for delivery in April 2021. Can I claim the 130% super-deduction on this expenditure?
Under the super-deduction rules, there are exclusions for expenditures on contracts entered into prior to 3 March 2021, even if expenditures are incurred after 1 April 2021.
Other Capital Allowances
All examples assume a corporation tax rate of 19%. The calculation for total tax saving is the corporation tax rate multiplied by the total value of deduction.
The calculation for tax savings per £1 spend is simply the total tax saving divided by the initial investment.
Super-Deduction (£1m or less expenditure)
Super-Deduction (Greater than £1m expenditure)
Expenditure Company A purchases construction equipment to the value of £1,000,000 Company B purchases HGVs to the value of £2,000,000 Tax saving options Option A (Super-Deduction) Option B (AIA) Option A (Super-Deduction) Option B (AIA plus 18% WDA) Deductible from taxable profits £1,300,000 £1,000,000 £2,600,000 £1,000,000 plus £180,000 Full tax savings £247,000 £190,000 £494,000 £224,200 Tax savings per £1 of expenditure 24.7p 19.0p 24.7p 11p
Lloyds Bank plc, Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England & Wales no. 2065. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under Registration Number 119278.
Lloyds UDT Leasing Limited, Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England & Wales no. 665240.
Lloyds Bank Asset Finance, part of Lloyds Banking Group, is a member of the Finance & Leasing Association (FLA) and complies with the FLA Business Code of Practice. Lloyds Banking Group is a member of the Lending Standards Board (LSB) and complies with the LSB Standards of Lending Practice for Business Customers (Asset Finance). Further information is available from the FLA at www.fla.org.uk and from the LSB at www.lendingstandardsboard.org.uk.
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The provision of our credit or leading services by us is subject to you meeting our credit approval. Please ensure that you only apply for credit or leasing services that you can comfortably afford.