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March 8th 2021

Budget 2021: the "Super Deduction" Capital Allowance

From 1 April 2021 until 31 March 2023, companies investing in qualifying plant & machinery will be able to claim a "super-deduction" through the capital allowances system.

It is claimed that the new rule will make the UK's capital allowance regime among the most competitive in the OECD.

The deduction will allow businesses to claim:

  • a 130% capital allowance on qualifying "main rate" plant & machinery assets (those attracting the 18% writing down allowance); and
  • a 50% first-year allowance on qualifying "special rate" assets (those attracting the 6% writing down allowance)

The effect of this new super deduction will be to enable companies to cut their tax bill by up to 25p for every £1 they invest.

Certain assets, such as vehicles and leased assets, may however be subject to restrictions.

This policy paper seems to imply that the deduction may only be available in respect of new plant & equipment; used and second-hand equipment, and expenditure incurred on contracts entered into prior to 3 March 2021, may not qualify. There will also be special rules dealing with the subsequent disposal of assets on which the super-deduction was claimed.

Alongside the super deduction, the existing Annual Investment Allowance and Structures & Buildings Allowance regimes are expected to continue.

Further details can be found on this factsheet produced by HM Treasury.

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