The end of the 130% super-deductions

On 31st March 2023, the government’s 130% super-deduction capital allowance on qualifying plant and machinery investments will come to an end. The aim of the super-deduction was to give companies a strong incentive to make additional investments, and to bring planned investments forward.

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, ensuring the UK capital allowances regime is amongst the world’s most competitive.

The 130% super-deduction and 50% first-year allowance are generous brand new capital allowances for investments in plant and machinery assets. Both will allow investing companies to lower their corporation tax bills.

What are capital allowances?

Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. They take the place of accounting depreciation, which is not normally tax-deductible. Businesses deduct capital allowances when computing their taxable profits.

In translating its accounting profits into taxable profits, a business is usually required to ‘add back’ any depreciation, but can instead deduct capital allowances. For example, a corporation tax paying company with accounting profits of £1,000, depreciation expense of £200 and total capital allowance claims of £300 would make the following adjustment:

• Add £200 (depreciation expense) to £1,000 (accounting profits) = £1,200

• Deduct £300 (capital allowances) from £1,200 = £900 (taxable profits)

• Apply the appropriate tax rate, e.g. corporation tax at 19%: £900 x 19% = £171 tax due

What is plant and machinery?

Most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances. There is not an exhaustive list of plant and machinery assets. The kinds of assets which may qualify for either the super-deduction or the 50% FYA include, but are not limited to:

• Solar panels

• Computer equipment and servers

• Tractors, lorries, vans

• Ladders, drills, cranes

• Office chairs and desks

• Electric vehicle charge points

• Refrigeration units

• Compressors

• Foundry equipment

Examples of the super-deduction in practice

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.

What does this mean for upcoming purchases?

If you’re thinking of purchasing an asset which is listed above and covered by the super-deduction, don’t leave it too late to take advantage of the government scheme.

If you have not got the cash within the business to make the purchase, or would prefer to leave the capital in the bank to stabilise your cashflow, asset finance will allow you to pay for the asset over a set period of time without needing to make a lump-sum payment upfront.

To find out if your purchase is eligible for asset finance, just get in touch and we can talk through your requirements.