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Super-Deduction and Special Rate Allowances

19th May 2021 | Written by In Accountancy | Categories : Limited Companies, News, Small Business Advice, Tax Advice
Super-Deduction and Special Rate Allowances

The newly amended Super-Deduction and Special Rate Allowances came into force on 1 April 2021, following the release of the annual budget.

This article attempts to lay out in the simplest terms what the Super-Deduction is and where it applies in practice, as well as giving you an overview of other allowances available.

Who can claim these Super-Deduction and Special Rate Allowances?

Limited companies only.

So if you are a sole trader, or part of a partnership, then we’re very sorry, this is not for you.

What’s changed?

The so called Super-Deduction Allowance is brand new and the Special Rate Allowance now has increased benefits, providing significant tax relief to qualifying assets.

What are the benefits of the new Super-Deduction Allowance?

The Super-Deduction Allowance now provides 130% first-year tax relief on new assets which qualify as main-rate plant and machinery.

What are the benefits of the new Special Rate Allowance?

The Special Rate Allowance now provides 50% first-year tax relief on new, qualifying assets, and integral features in buildings.

Can I claim these Allowances on second-hand assets?

NO – You cannot claim these Allowances on second-hand assets.

Leased assets, cars, and machinery purchased by businesses to hire out will unfortunately be excluded too.

Why should I be aware of this?

Main-rate plant and machinery expenditure would normally only qualify for 18% main pool annual relief.

Long-life assets and integral building features would normally only qualify for 6% special pool annual relief.

These tax breaks therefore present a great opportunity – to recoup costs and expand your business.

How long are these Allowances valid for?

These new allowances will only apply to expenditure between 1 April 2021 and 31 March 2023.

You only have a couple of years to take advantage of the benefits.

Is there a cap?

There is no capital expenditure cap for the Super-Deduction and Special Rate Allowances.

Other than these new items, are there are other tax benefits I should be aware of?

Annual Investment Allowance

Aside from the newly amended items, you should be aware of a further one-year extension to the Annual Investment Allowance (AIA), which provides 100% tax relief for plant and machinery expenditure when claimed before 31 December 2021.

This covers most plant and machinery (second-hand or otherwise) and currently has a £1 million annual cap.

Am I eligible?

To be eligible for these tax breaks, you must be paying corporation tax.

How to make the most of Super-Deductions

Please remember that it is a temporary allowance – you will not be able to benefit from it forever!

The Super-Deduction Allowance is claimable until 31 March 2023.

Corporation tax is set to rise to 25% in 2023, for profits over £250,000 – this is a great time to recoup some of your future losses!

To make the most of these benefits, it is worth carefully considering the timing of any contractual arrangements and company plans.

Useful Resources

Super-Deduction Factsheet PDF (publishing.service.gov.uk)

Are you benefitting yet from the new super-deduction and special rate allowances? | Harold Sharp | Manchester

Still unsure of something?

Please contact us here if you have any queries or need some friendly advice – we’d be happy to help.

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