Super Deduction Scheme

To recap, from 1 April 2021 until 31 March 2023, businesses investing in qualifying plant and machinery assets will benefit from up to 130% first-year capital allowance, under the Government’s Super Deduction Scheme.

This scheme allows businesses to deduct the full value of qualifying assets from profits before tax and to do so in the year assets are purchased rather than over several years, therefore reducing the business’ tax liability in that year.

For example, under the new rules: if your taxable profits pre-investments are £200,000, and you invest £100,000 in qualifying new machinery, you will be entitled to claim in that year a capital allowance of £130,000.  The Corporation Tax rate is currently 19% meaning the tax saving on that £130,000 will be £24,700 rather than £19,000 when it falls within a company's annual investment allowance.

Furthermore, there is no limit or cap on the amount of capital investment that can qualify for the super deduction.  This makes the scheme particularly beneficial when the level of investment would have exceeded the annual investment allowance in previous years, as in this instance capital allowances could only be claimed over several years rather than all in the year of purchase.

The scheme works alongside a number of finance options, although these will have to meet additional conditions to qualify for the super-deduction.

For more information on this allowance please refer to the HM Revenue & Customs website www.gov.uk/guidance/super-deduction

Please note, it is also important to seek advice on the impacts and benefits for your specific business from your accountant or business adviser before undertaking any machinery investment under this scheme.

SOME EXAMPLES OF POTENTIAL IMPACTS FOR MACHINERY PURCHASED AFTER 1ST APRIL 2021:
A new Drill costing £5,000.  Before 1st April 2021, the full value of the drill could be set against profits in the year of purchase using the Annual Investment Allowance saving £950 in tax (corporation tax is currently at 19%).  From 1st April 2021, under the super deduction scheme, 130% of the value can be set against profits in the year of purchase, generating a saving of £1,235 in corporation tax which equates to an extra £285.
A new Automatic Crosscut costing £45,000.  Before 1st April 2021, the full value could be set against profits in the year of purchase using the Annual Investment Allowance saving £8,550 in tax (corporation tax is currently at 19%).  From 1st April 2021, under the Super Deduction Scheme, 130% of the value can be set against profits in the year of purchase, generating a saving of £11,115 corporation which equates to an extra £2,565.
A new Machining Centre costing £115,000.  Before 1st April 2021, the full value could be set against profits in the year of purchase using the Annual Investment Allowance saving £21,850 in tax (corporation tax is currently at 19%).  From 1st April 2021, under the Super Deduction Scheme, 130% of the value can be set against profits in the year of purchase, generating a saving of £28,405 in corporation tax which equates to an extra £6,555.
Disclaimer.  These examples are for illustrative purposes only and you should always check with your accountant regarding your particular business situation and any tax benefits that would apply.

To discuss any potential machinery requirements please get in touch with our sales team on 0151 548 9000, email to [email protected]