Capital Allowances – Super Deduction and Special Rate Allowance
On March 3, 2021, the Government announced two temporary first-year allowances to aid in the economic recovery from the COVID-19 pandemic and stimulate business investment in new technology and equipment known as the “Super Deduction” and the “Special Rate (SR) Allowance”. UK Companies investing in new plant and machinery assets can claim a super-deduction allowance of 130% and a special rate allowance of 50% on qualifying investments available up to March 31, 2023
What are Qualifying Investments?
Qualifying investments for the super-deduction and SR allowance include all new plant and machinery ordinarily eligible for the 18% primary pool rate of writing down allowances and new plant and machinery eligible for the 6% special rate pool, including long-term assets and parts of a building that are built-in. Some examples of qualifying assets include computer equipment and servers, solar panels, tractors, lorries, vans, and foundry equipment. However, the super deduction is only available for new investments, not second-hand purchases.
Eligibility Requirements
While the super deduction provides unprecedented relief for qualifying investments in plant and machinery, companies must meet specific eligibility criteria and follow guidelines such as making a qualifying investment, keeping detailed records, and claiming tax relief on their corporation tax return. However, certain assets do not qualify for the allowance. These include second-hand equipment, land and buildings, certain vehicles such as cars, and leased equipment, excluding new plant and machinery.
March 31, 2023, Deadline
The Super Deduction is a temporary tax allowance to encourage business investment, and it will expire on March 31, 2023. Companies may like to consider making this investment now. As after the March 2023 deadline, companies will revert to previous tax incentives for investments in plant and machinery, such as the Annual Investment Allowance and Writing down Allowance.
Professional Advice
The Super Deduction and the Special rate allowance are more complex than they seem. The Government may even consider extending the super deduction allowance beyond March 31, 2023; however, no extension has been announced. Companies should therefore consult a tax professional to ensure they meet all eligibility requirements and claim the deduction correctly.
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