What is the Super Deduction Tax?
What is the Super-deduction tax?
As a business, if you buy eligible assets, or plant and machinery, you may be eligible for capital allowance tax relief. This means you write off the full cost of qualifying purchases against your taxable income, so in effect reducing your overall corporation tax liability.
The super deduction capital allowance, available between 1 April 2021 and March 2023, for qualifying purchases the capital allowance increases from 100% t0 130%.
Why is the Super Deduction tax on offer to businesses?
The new tax relief was announced at the April 2021 Budget as part of several Government measures to invest in the UK economy. post COVID pandemic. The idea is for businesses to spend and invest in capital assets to improve productivity and foster growth and competitiveness across the UK economy.
Which businesses are eligible?
Only limited companies are eligible. Sole traders and partnerships are not.
What qualifying assets are eligible for the super deduction?
Qualifying assets must be be bought new, not second hand.
The assets must also be physically used in the business, rather than being used or leases to clients or customers the business serves.
Examples of qualifying assets include computer equipment , company vans, tractors or lorries (not cars) and office furniture. This is by no means an exhaustive list and the rule of thumb is that HMRC will view most tangible or physical assets bought for the business as eligible.
Contact us if you would like to better understand what qualifies here
What if I can only buy second hand?
A secondhand asset does not qualify for the super deduction, however, it does qualify for the tax relief, Annual Investment Allowance, which gives 100% tax relief. Asset worth up to £1 million is available until 31 December 2021.
How much can you save using Super-deduction capital allowance?
The super deduction gives you 130% uplift on the purchased price for the qualifying tangible or physical assets you buy in your business. So for example, if you buy an asset worth £10,000, this increases by 130% to £13,000 and the deduction against corporation tax is £2,470. Without the super deduction as part of the standard capital allowance tax relief on assets, the tax relief would only be £1,900 reduction. So in this example, you make an additional corporation tax saving of £570.
