Capital allowances (tax depreciation) planning: the end of the super-deduction

In Finance Act 2021, the then Chancellor of the Exchequer (the UK’s Finance Minister), Rishi Sunak, announced the introduction of the super-deduction as a fiscal incentive to encourage UK companies to acquire qualifying capital assets following the deleterious effects of the pandemic on the UK economy.

What is the super-deduction?

The super-deduction provision is a temporary capital allowances (tax depreciation) measure. As from 1 April 2021 to 31 March 2023, companies investing in qualifying new plant and machinery assets can claim:

  • 130% super-deduction capital allowances on plant and machinery capital items; and
  • a 50% first-year allowance for qualifying special rate assets

The enhanced super-deduction rates assist in reducing a company’s corporation tax charge by allowing 130% of a qualifying asset to be deducted from profits in arriving at taxable profits.

Unfortunately, the current Chancellor of the Exchequer did not extend the duration as to when this measure applied in his most recent Budget and accordingly, the super-deduction ceases to have effect as from 1 April 2023. As from this date, the capital allowances rate applying to the main rate pool to qualifying capital expenditure is 18% and the capital allowances rate applying to qualifying capital expenditure with regards to “special rate” integral assets is 6% (integral assets broadly refers to prescribed parts of the buildings).

Next steps

The super-deduction continues to be an advantageous tax measure for companies but, as noted above, it only lasts until 31 March 2023.

Companies should review their planned or projected capital expenditure to be made in 2023 (in conjunction with their cash flow position) to consider whether capital expenditure should be made on or before 31 March 2023 (i.e. speeded up) so as to benefit from the additional 30% capital allowances benefit arising from the 130% super-deduction. In relation to the 50% first year allowance on qualifying special rate assets referred to above, please note that the Capital Allowances’ Annual Investment Allowance, set at £1,000,000, remains and may provide a more tax beneficial measure in speeding up the capital allowances in respect of qualifying expenditure.  

Should you have any questions in respect of the above (including which assets fall into the respective categories of the super-deduction), please do not hesitate to contact Reuben Fevrier or your main Corporation tax contact at Arnold Hill & Co LLP.

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The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice.  No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.