The Super-deduction

October 26th, 2022

Are you planning on investing in plant and machinery? Could the 130% super-deduction capital allowance ending on 31st March 2023 save you some Corporation Tax?

Contrary to rumours, the 130% super-deduction was not removed as part of the ‘mini-budget’ on 23rd September, therefore limited companies can still make use of the 130% allowance until 31st March 2023.

The Annual Investment Allowance (AIA) is £1m until 31st March 2023. The annual investment allowance (AIA) lets a business deduct 100% of the cost of qualifying plant and machinery assets from their taxable profit, in the tax year of purchase.

The Super-deduction allowance

The super-deduction allows companies to deduct 130% (enhanced from 100%) of the cost of qualifying plant and machinery assets from their taxable profit, in the tax year of purchase. To qualify the asset must not be a second-hand purchase or a company car.

Examples of qualifying purchases are:

  • computer equipment and servers
  • tractors, lorries, vans
  • ladders, drills, cranes
  • office chairs and desks
  • electric vehicle charge points
  • refrigeration units
  • compressors.

The Special rate allowance

If the asset you are planning to purchase does not qualify for the 130% super-deduction, it may still qualify for the 50% special rate allowance (enhanced from 6% in the first year only). This covers integral features in a building and assets with a life of over twenty-five years.

Other examples can include:

  • solar panels
  • foundry equipment
  • water pipes within a building
  • an electrical system within a building.

Bear in mind that hire purchased assets (where the company owns the asset at the end of the agreement) should qualify for the enhanced allowances, but hired/leased assets will not qualify.

If you are considering investing in your business, we advise doing so before 31st March 2023.

Effects of the mini budget and U-turn on the super-deduction

The super-deduction was not specifically mentioned in the mini budget but with corporation tax now set to increase from 1st April 2023, this could affect the level of benefit of claiming the super-deduction.

For companies with profits of less than £50,000, the corporation tax rate will remain at 19%, which means there is a potentially a significant benefit to purchasing a qualifying asset before 31st March 2023 compared to after this date.

If your profits are between £50,000 – £250,000, the rate of corporation tax will be between 19 and 25% and therefore there is still a benefit to buying a qualifying asset before 31st March 2023.

For companies with profits of £250,000 or more, the rate of corporation tax will be 25% on all profits. This therefore removes any benefit of the super-deduction and there is no benefit in purchasing a qualifying asset before 31st March 2023 compared to waiting until after this date.

Disposal of chargeable assets

If you are looking to dispose of chargeable assets within the next few years, you should consider bringing forward the date of the disposals to before 1 April 2023 in order to benefit from the lower rate.

Please do contact us if you have any questions or call us on 01276 61203

The Super-deduction