Capital Allowance super-deduction: an attractive measure but time to start planning now
The government’s new capital allowance ‘super-deduction’ hopes to boost business investment and productivity, but good planning and record-keeping are essential for businesses hoping to take advantage.
Experts have been poring over the detail of the ‘super-deduction’, a £25bn tax break announced in the budget on 3 March which intends to spur business investment, aid post-pandemic economic recovery and give a boost to the UK’s productivity levels.
For two years from April 2021, companies’ investments in plant and machinery will qualify for a 130% capital allowance deduction, providing up to 25p off company tax bills for every £1 of qualifying spending on plant and machinery. The policy aims to spur post-pandemic growth and give the government more corporate profits to tax come 2023.
The government says since the COVID-19 pandemic, previously low levels of business investment have fallen further, with a reduction of 11.6% between Q3 2019 and Q3 2020. “Making capital allowances more generous works to stimulate business investment,” HM Treasury explains “As a result, these measures can promote economic growth and counter business cycles. The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.”
It is the first time the UK government has introduced a rate of capital allowances relief that has exceeded 100%, and as such the absence of an upper monetary limit and the fact there are few exclusions in terms of the kinds of plant and machinery for which it could make it an attractive measure for businesses.
Companies using finance to invest in plant and machinery through hire-purchase type arrangements would also be able to access the Chancellor’s super-deduction, provided payments are being made to acquire the asset and there is an expectation that legal ownership in the asset will pass at some point to the lessee on it exercising an option or another event occurring.
Meanwhile, questions remain over whether the super-deduction applies to software developed in-house that has been capitalised as an intangible fixed asset in the company’s accounts, and we are expecting some clarity from HMRC over this in the weeks and months ahead.