How “super” is the government’s new super-deduction?
Michael Lansdell explains the super-deduction for plant and machinery purchases.
A super-deduction of 130 per cent for plant and machinery (P&M) – when purchased new, between April 1, 2021 and March 31, 2023 – was announced in the budget on March 3.
Anything described as “super” sounds incredibly exciting, and a lot of our clients thinking about making a capital purchase have asked us about it as potential a way to cut their tax bill, should they qualify.
We all know the adage that if something sounds too good to be true, it usually is. So, is this “super” deduction really as dazzling as it sounds?
Super deduction, broken down
This is how it works. For new and qualifying P&M assets, purchased between the specified dates, companies only will be able to claim a 130 per cent super-deduction capital allowance. So, for £10k expenditure, there’ll be a £13k deduction against profits. Invest in new P&M, including brand-new equipment for use in the business (new computers, for example) and HMRC will pay 24.7 per cent of the cost and your company will pay the remaining 75.3 per cent. The contract for the brand-new P&M must have been entered into after March 31, 2021.
“Companies only” refers to a company that is subject to corporation tax – so, not an individual, partnership or LLP.
There are always exceptions
For P&M that doesn’t qualify for the super-deduction, the annual investment allowance is slightly less, at 100 per cent. This applies to all businesses, on P&M that is not new (second-hand computers would be the example here). So, for £10k expenditure, there’ll be a £10k deduction – not quite super, but pretty good. In such cases, HMRC will pay 19 per cent of the cost, and the company the remaining 81 per cent.
When neither of these scenarios apply for a P&M investment, HMRC will pay 3.4 per cent of the cost; the company, 96.6 per cent, for example a second car with higher CO2 emissions.
Two important exceptions? Cars do not qualify for the super-deduction, even if they are fully electric. Also non-qualifying are property companies (landlords).
Interested, intrigued or still confused? There is more information available on the government website, but this is essentially about encouraging investment now that such a turbulent period is hopefully coming to an end. If you are looking at investing in brand-new or any other kinds of P&M or are open to exploring all options to grow your business, boost revenue and cash flow, give Figurit a call. With plenty of clients who have benefited from our long-term support, we can help you make good, pragmatic decisions for an exciting future.
For more information call Figurit (formerly known as Lansdell & Rose) on 020 7376 933.