Budget 2021 – Update – Super Deduction Announced for 130% Capital Allowances

Budget Announcement

Chancellor of the Exchequer, Rishi Sunak MP, announced in his Budget Statement earlier today (03/03/2021) that from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

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

According to HM Revenue & Customs, this ‘super-deduction’ will allow companies to cut their tax bill by approximately 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

The government has offered unprecedented support for businesses during Covid. Even so, pandemic-related economic shocks and the accompanying uncertainty have chilled business investment. This super-deduction will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now.

Draft Legislation

The proposed draft Finance Bill 2021 seeks to makes legislative changes to Part 2 of the Capital Allowances Act 2001 (CAA2001). The key changes for the ‘Super-deduction’ and ‘SR Allowance’ are set out below:

• expenditure must be incurred on or after 01 April 2021 up to and including 31 March 2023;
• only for companies within the charge to UK Corporation Tax;
• a ‘Super-deduction’ providing allowances of 130% on most Main Pool expenditure - that would ordinarily qualify for 18% main rate writing down allowances (Plant & Machinery);
• a first year allowance of 50% (‘SR Allowance’) on most Special Rate Pool expenditure - that would ordinarily qualify for 6% special rate writing down allowances (Integral Features, Long Life Assets & Thermal Insulation);
• must not be within any of the general exclusions under s.46(2) CAA2001;
• amended rules covering expenditure used partly in a ring fence trade in the oil and gas sector;
• excludes expenditure from any contacts executed prior to Budget day (03 March 2021); and
• apportionment will be required for accounting periods that straddle 01 April 2023 - the rate should be apportioned based on days falling prior to 01 April 2023 over the total days in the accounting period.

There are further factors, in addition to the key points above, which taxpayers may need to consider in order to benefit from these new enhanced rates of relief. Please contact us to clarify any specific queries or project requirements.

*Source: HM Treasury

*Download pdf of table on right of page for better image quality.

Our View

Alun Oliver, Managing Director of Property Taxation Specialists E3 Consulting, commented “this is a new and untested enhancement to the UK capital allowances regime and clearly intended to encourage UK Companies to expedite any investment – which the Government no doubt wants to see as a catalyst to wider economic activity. Whilst any boost to capital allowances is always welcome it is disappointing to see the measure only applies to companies (– subject to Corporation Tax) given that much economic activity is through other entities such as LLPs, individuals or ‘old style’ partnerships. Additionally, the timings will further complicate the interaction with Integral Feature Allowances (IFAs) subject to the 50% First Year Allowances and the existing 100% relief through Annual Investment Allowances (AIAs) on the first £1m – until 31/12/21”.