Super-deduction for companies investing in new plant and machinery

Oct 21, 2022

The Chancellor has announced a new tax deduction aimed to stimulate investment by UK companies.

Between 1 April 2021 and 31 March 2023, companies will be able to claim a corporation tax deduction at 130% of qualifying expenditure. This has not been extended to unincorporated businesses, or other structures such as LLPs.

This measure only applies to main rate pool assets,  but 50% deduction also announced for expenditure on most new assets that would ordinarily qualify for 6% special rate pool.

Although this is a welcome announcement, as with much of this Budget, the complexity is in the small print. This measure, in particular, is a super-complex super-deduction. For example, certain assets are excluded, so it only applies to new assets and not second hand purchases, which is a shame for businesses that may wish to sell assets to improve cash-flow during difficult times.

Further complexities arise where assets are sold having previously benefitted from the super-deduction.

Timing for expenditure is going to be key. Whilst we would encourage companies to delay expenditure until April, contracts entered into before 3 March will not benefit from the super deduction even if the date of the expenditure is delayed.

Whilst the rate of super deduction does not appear to be affected if expenditure is incurred in accounting periods which straddle 1 April 2021, the rate of deduction is reduced for periods straddling 1 April 2023. It may be worth considering changes to accounting periods to mitigate a loss in the deduction if expenditure is planned to be significant in late 2022 or early 2023.

Additional conditions will be imposed on expenditure on assets acquired under hire purchase or similar contracts.

For more information or to purchase, email or call 0113 389 9710.