Written by Kyle Barford, Product Manager (Tax)
One of the flagship measures announced in the Budget 2021, the super-deduction for corporate capital allowances, is designed to stimulate higher levels of business investment.
In practice, the super-deduction is being enacted via an extension of the existing first-year allowances rules. The changes introduce two new temporary allowances, in effect for expenditure incurred between 1 April 2021 and 31 March 2023 inclusive:
1. The “super-deduction”: a 130% first-year relief on expenditure that would ordinarily qualify for main rate writing down allowances
2. A 50% first-year relief on expenditure that would ordinarily qualify for special rate writing down allowances
Unusually, the 130% rate represents an enhanced deduction as well as the accelerated timing relief that we are used to from the existing 100% first-year allowance rate.
In order to qualify for either relief certain conditions must be met, including that the expenditure must not fall within the existing general exclusions on first-year expenditure under CAA 2001 s46(2). In particular:
• The plant or machinery must be unused and not second-hand
• Expenditure on cars is excluded
• Expenditure on the provision of plant and machinery for leasing is excluded
• Contracts entered into prior to 3 March 2021 are excluded
• The claimant must be a company within the charge to Corporation Tax
Unincorporated businesses are unable to claim either the super-deduction or the 50% relief on special rate expenditure, and must instead rely on the existing Annual Investment Allowance rules.
There are separate rules in respect of expenditure for the purposes of a ring fence trade.
For qualifying main-rate expenditure, the potential tax relief is just under 25%. Due to the existing temporary AIA uplift, in the short term, companies with capital expenditure in excess of £1m per annum will see the greatest benefit from this new relief.
|A Limited - without super-deduction||£|
|AIA: £1m @ 100%||1,000,000|
|WDA: £4m @ 18%||720,000|
|Tax relief: £1,720,000 @ 19%||326,800|
|A Limited - with super-deduction||£|
|Super-deduction: £5m @ 130%||6,500,000|
|Tax relief: £6,500,000 @ 19%||1,235,000|