Claiming the super-deduction allowance

You may recall that we discussed the super deduction allowance in our previous post here on the Budget 2021. Following on from this we're going to discuss in more detail when claiming the super-deduction allowance may be appropriate.

Claiming the super-deduction allowance

What is the super-deduction allowance?

Essentially the super-deduction allowance is an enhancement to the existing capital allowances regime on plant and machinery used in a business. For most small and medium sized businesses the allowance will operate in the following manner:

  • Where a purchase of qualifying plant and machinery would usually be accounted for by claiming either the Annual Investment Allowance or First Year Allowance, a 30% enhancement is added. In other words, 130% of the total cost can be claimed. 
  • Where plant and machinery (typically integral features or long-life assets) would normally qualify for a written down allowance of 6%, this is substituted for 50% of the total cost.

Conditions for claiming the super-deduction allowance

Perhaps one of the most important points to make is that the super-deduction allowance can only be claimed by companies. Therefore sole traders, partnerships or LLP's do not qualify for relief. In addition the following conditions must apply:

  • The expenditure must be on brand-new plant and machinery so cannot be second-hand. However, if it has been used in a very limited scope, for testing or delivery, then this should qualify
  • Any expenditure must have been incurred between 1 April 2021 and 31 March 2023. Any expenditure incurred as a result of a contract entered into before 3 March 2021 is treated as incurred when the contract was entered not the date when the obligation to pay becomes unconditional - see here 

Relief for the super-deduction allowance will not be available in the following circumstances

  • If Expenditure is incurred in the same accounting period as the qualifying activity was permanently discontinued.
  • Any expenditure on cars (though not vans)
  • When expenditure is on provisions for plant and machinery, not the plant and machinery itself
  • Where expenditure is incurred on plant and machinery which was originally acquired for purposes other than the qualifying activity
  • Where assets have been gifted to the company, either by a director or a third party. The assets MUST be acquired in the company name.

There are also special rules that need to be considered where expenditure is incurred under a hire purchase or similar agreement.

Disposals of equipment where claiming the super deduction has applied

Where assets that have previously qualified for a super deduction are disposed of a balancing charge will arise in the period of disposal. Consideration will need to be given to determine the balancing charge particularly where amounts have been assigned to existing equipment pools. The methodology of how this is calculated can be seen in this example from HMRC's guidance here

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Alternatively, please feel free to complete our Business Questionnaire here.

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