UK and International Tax news

New Super Deductions For Capital Expenditure From 1 April 2021

Friday 9th April 2021

The Finance (No 2) Bill 2019-21, known as the Finance Bill 2021, includes new deductions for capital expenditure incurred by companies on/after 1 April 2021 and before 1 April 2023.

As announced in the March 2021 Budget, this measure will temporarily introduce increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim the following:

  • a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances, and
  • a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.

The super-deduction will also apply to computer software as well as physical assets and intangible fixed assets. It will add to tax reliefs already available on software, including research and development tax incentives.  The interaction of these reliefs should be carefully considered to ensure that tax relief is optimised for any software expenditure incurred.  The expenditure must be capital in nature for tax purposes.

Where an asset which has qualified for the super-deduction is disposed of, there will be a balancing charge, rather than a deduction of the sales proceeds from an asset pool, at 130% of the cost of the asset. With corporation tax rates increasing in the near future, the resulting charge may be taxed at a higher rate than the original deduction.

Businesses may now benefit from three significant capital allowance measures, being the super-deduction of 130% first-year relief, the 50% first-year allowance for special rate including long life assets until 31 March 2023 for companies, and the annual investment allowance providing 100% relief for plant and machinery expenditure of up to £1m until 31 December 2021.

If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.


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