Super Deduction and Capital Allowances Case study

Our Super-deduction webinar held in July 2021 included specialists from Bishop Fleming, and HSBC to examine the tax reliefs and funding options available for company investment in new buildings and plant, and in particular the interaction of the new Super Deduction with various existing capital allowances.

Super Deduction

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets are able to claim:

a Super Deduction (SD) providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
a first year Special Rate (SR) allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances

A HMRC factsheet explains how this works.

Investment

As businesses look to invest in the post-Brexit and post-COVID environment there are various tax and finance issues to consider, such as how to ensure the most appropriate tax reliefs (including the Super Deduction) and funding are secured

A key take away from our webinar is just how complex the capital allowances system now is and how important it is to seek tax advice early when making investment decisions in order to ensure that tax relief is maximised.

Claiming capital allowances – how many reliefs?

There are a wide range of capital allowances now available to businesses, each with their own rates of allowance and qualifying conditions.

The interaction between these capital allowances can be complex and the timing of expenditure is often key. In order to maximise tax relief, capital allowances need to be considered in the round rather than looking at any one relief in isolation.

Allowance	Rate of relief	Available for:
Super Deduction	130% in year of acquisition	New plant and equipment (companies only)
SR allowance	50% in year of acquisition	New integral features and long-life assets (companies only)
Annual Investment Allowance (AIA)	100% in year of acquisition up to maximum currently set at £1m	Qualifying plant & equipment, integral features and long-life assets
Research & Development (R&D) allowances	100% in year of acquisition	R&D assets or facilities (companies only)
Land remediation relief	150% in year of acquisition or 16% tax credit for loss making companies	Costs of remediating land & buildings e.g. removal of asbestos, contaminated soil and water, radon, arsenic or buried structures, invasive plants such as Japanese Knotweed (companies only)
Main pool allowances	18% p.a. reducing balance basis	Qualifying plant & equipment
Special rate pool allowances	6% p.a. reducing balance basis	Integral features and long-life assets
Structural building allowances	3% p.a. straight line basis	Building, renovating or converting commercial buildings (excluding cost of land)

Planning points

Some key tax planning points to consider when making investment decisions include the following:

The Super Deduction and SR allowance are only available for expenditure incurred between 1 April 2021 and 31 March 2023.
The AIA is available up to £1m per annum until 31 December 2021 when it is set to revert to £200k. Timing of expenditure is therefore key.
Hire purchase contracts can qualify for the Super Deduction and AIA whereas other types of finance leases may not qualify. Lease terms should be reviewed before being entered into.
Capital allowances can only be claimed on second hand integral features if certain steps are taken, which may include a joint election between the buyer and seller. Obtaining advice when buying a commercial building before contracts are signed, is important.
Solar panels can benefit from AIA and the 50% SR allowance. A separate 100% first year allowance is also available for electric points for electric vehicles until 31 March 2023.