Super-deduction ending in March 2023

What is the super-deduction tax relief?

Introduced in the March 2021 Budget, the capital allowances super-deduction allows companies to claim back 130% of the purchase price of qualifying plant and machinery items purchased between 1 April 2021 and 31 March 2023. Companies are also able to claim a 50% first-year allowance (FYA) for qualifying special rate assets.

The temporary tax incentive was introduced to encourage limited companies to invest in assets such as machinery, tools, vans, tractors, solar panels and more and has been regarded as a highly generous scheme.

When does the scheme end?

The scheme is set to end on 31 March 2023.

Disposal of assets where super-deduction was made:

Where the full 130% FYA is claimed, there will be no remaining expenditure to be allocated to the capital allowances pool, so any disposal will create a balancing charge on the proceeds.

For example:

• New plant and machinery acquired for £1m in the accounting period ending 30 April 2021. 
• FYA 130% claimed. 
• Asset then sold for £0.5m.

If the sale takes place in the accounting period ending 30 April 2021 or 30 April 2022, the balancing charge will be £0.5m x 1.3 = £0.65m.

If the sale takes place in the accounting period ending 30 April 2023, the balancing charge will be £0.5m x (335/365 x 0.3 = 0.275 + 1) = £637,500.

If the sale takes place in a later year, the balancing charge will be £0.5m.

Accounting year ending on, or after 1 April 2023

For qualifying expenditure incurred in a period which straddles 1 April 2023, there will be a reduced super-deduction percentage which will be calculated based on the number of days falling before 1 April 2023.

For example:

A company with a 31 December 2023 year end would be entitled to a super-deduction of £1,074 on expenditure of £1,000 that was incurred on, say, 1 February 2023.  This is calculated as follows:

Number of days in accounting period before 1 April 2023 = 90 days

90 days/365 days (days in the entire accounting period)

90/365 x 30% = 7.4%

7.4% + 100% = super deduction rate of 107.4% for qualifying expenditure in the period up to and including 31 March 2023

£1,000 x 107.4% = £1,074

If you have any questions about the super-deduction tax relief, please contact our Senior Tax Manager, Vanessa Glenn.

Email: [email protected]

Phone: 02476 306029