1. What is super-deduction relief?

Companies investing in new plant and machinery and I.T. assets up to March 31, 2023, can benefit from a 130% first-year capital allowance.

This upfront super-deduction will allow companies to save up to 25 pence for each pound they invest and significantly improve short term cash flows. This is one of the biggest tax breaks and cash flow incentives available to UK companies but it ceases in less the 8 months time.

Investors can also benefit from a 50% first-year allowance for special rate assets.

2. The is no cap or limit

Unlike other UK Company tax incentives there is no cap of limit to the Super Deduction which means companies can save tens or hundreds of thousands of pounds!

3. Are there any costs which are excluded from the super deduction?

The super-deduction does not apply to second hand assets and expenditure which was contracted into before March 3, 2021.

Plant and machinery expenditure which is incurred under a hire purchase or similar contracts must meet additional conditions to qualify for the super-deduction and special rate relief.

No deduction is allowed:

4. How to calculate super-deduction

Calculating the super deduction is simple.

For example, if your company made £1,500,000 profit and invested £1,000,000 in plant and machinery in the same year it can reduce profits chargeable to corporation tax by £1,300,000 (£1,000,000 x 130%) leaving only £300,000 of profits chargeable to tax.

5. Corporation Tax Rates are due to increase to 25% in April 2023 – should I still invest?

Yes you should!

At the time of writing UK corporation tax rates are due to increase to 25% in 7 months time and the super deduction is expected to end.

If both events occur and ‘normal’ tax rules apply your £1 Million investment would save £216,000 spread over a 10 year period as opposed to the upfront tax saving of £247,000.

It’s a ‘no brainer’ in terms of both a tax saving and getting the investment in place early to generate efficiencies and accelerate growth.

Take Homes

With inflation rampant, stagflation on it’s way (if not already here) companies need to focus even more on productivity and can do this by investing in machinery and IT equipment. Those which do will survive and come out stronger on the other side. The Super Deduction is one of the best ways to help finance, accelerate and justify the return on your investment.

Want to know more about the Super Deduction and how you and your finance team should be using it to plan for growth? Contact us.