Super-deduction capital allowance: all you need to know

Super-deduction capital allowance: all you need to know

Now is the perfect time to invest in new plant and machinery, thanks to the Government’s new super-deduction capital allowance scheme.

The impact of the lockdowns on the economy has forced many companies to freeze investment. In fact, business investment fell by 11.6% between Q3 2019 and Q3 2020. Now that the UK economy is gearing up for a brighter post-Covid future, the super-deduction scheme will hopefully encourage more investment in productivity-enhancing plant and machinery.

“Much of the UK’s historic productivity gap can be blamed on a low level of business investment compared to other nations,” says HNC Ltd managing director Mike Diskin.

Hopefully, we have started a new chapter thanks to schemes like the super-deduction capital allowance. There has never been a better time to make serious business investments which will promote growth across the manufacturing and production sectors of the economy.

Mike Diskin

So how can companies take advantage of the new allowance? Mike outlines below the key elements of the scheme…

What is the super-deduction capital allowance?

Launched on April 1, 2021 the scheme runs until March 31, 2023 and is aimed at helping businesses to invest in new plant and machinery equipment. The initiative is just one part of the UK Government’s Covid-19 financial package to support businesses during the pandemic.

Capital allowances allow taxpayers to write off the cost of capital assets against taxable income. The allowances replace accounting depreciation, which is not normally tax deductible. Businesses simply deduct any capital allowances when calculating their taxable profits.

The initiative is aiming to make the UK’s capital allowance regime more internationally competitive post-Brexit.

How will the allowance work?

Businesses will be able to claim a 130% super-deduction capital allowance on qualifying plant and machinery investments made during the qualifying period. Basically, for every pound a company invests, their taxes will be cut by up to 25p.

As well as the super-deduction capital allowance, there is also a 50% first-year allowance for qualifying special rate assets until March 31, 2023.

What type of plant and machinery qualifies?

Most tangible capital assets which are used in core business operations will qualify for capital allowances. These include (but are not limited to) the following:

  • Solar panels
  • Computer equipment
  • Tractors, lorries, vans and other vehicles
  • Ladders, drills, cranes
  • Office furniture
  • Electric vehicle charging points
  • Refrigeration units
  • Compressors
  • Manufacturing equipment

What is exempt?

Surprise, surprise there are exemptions such as any buildings or equipment that is provided by a landlord. Also, leased equipment may not be covered, so do your homework before you sign any contracts.

Anything which you owned or leased before April 1, 2021 is not covered. This includes any contract which covers several pieces of equipment

Conclusion

“Our roller grinding machines are one example where businesses can invest in machinery which will also save them money in the long term,” adds Mike.

“Our clients find that it is cost effective to buy their own roller grinding machine, rather than pay someone else to do it for them. Our grinding machines start from £75K, so they can pay for themselves within six months.

“The super-deduction capital allowance means business can lower their corporation tax liability by making cost-saving investments in the business. It’s a win-win situation and can provide extra working capital when businesses need it most.”

To find out more see http://www.hncl.co.uk/about_us.htm




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