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Super Deduction - additional relief to support recovery and growth

Following the Budget 2021 announcement in March, one of the main talking points continues to be the Super Deduction and how this can benefit companies as they look to recover from the effects of the pandemic and/or look to grow their business.

The Super Deduction is a Capital Allowance and is available for companies for the purchase of ‘new and unused’ Plant and Machinery from 1 April 2021 to 31 March 2023. Purchases of this kind will attract a 130% deduction on the spend that the company incurs where the item qualifies as a Main Pool item for Capital Allowances. The deduction drops to 50% where the items qualify for Special Rate Pool treatment. This spend would attract a tax benefit of up to 24.7p for every £1 spent on a qualifying item.

Plant and Machinery for this purpose has a wide-ranging definition that includes anything from manufacturing equipment and vans through to computer equipment and office furniture. The key to ensuring that the relief can be utilised on this spend is that the Plant and Machinery must be ‘new and unused’. There is no hard definition from HMRC on what is classed as ‘new and unused’ but we have do have a definition of ‘new and unused’ when considering the purchase of a car.

Here, HMRC state that “a car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser, or used as a demonstration car”.

Therefore, a machine that has been an ex-demonstrator or has been used for testing by the company prior to purchase would, under this definition, be classed as ‘new and unused’.

Care needs to be taken if any Plant and Machinery is purchased via a hire purchase agreement, as if there is not an option for the company to take full ownership of the asset at the end of the agreement, then the purchase of the asset will not qualify for the Super Deduction. It is important to ensure that this clause is included in the agreement to ensure the most beneficial tax treatment is obtained.

With this tax relief due to end on 31 March 2023, before the rise in Corporation Tax rate to 25% for some companies, it is important that if you are planning on making a purchase of Plant and Machinery during this time period that you take into consideration the Super Deduction to ensure that the company is maximising the tax relief that is due, thereby reducing the overall net cost of the purchase.

If you would like to discuss this feature further, please contact a member of our tax team to the right of this page.

Written August 2021.

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