The super-deduction is a type of capital allowance that enables companies to claim a 130% deduction on qualifying plant and machinery expenses. This allowance provides businesses with the opportunity to make extra investments in their operations. The tax relief was introduced to assist companies during the pandemic. It is only available for a limited period and will come to an end on 31 March 2023.
What are Capital Allowances?
Capital allowances refer to a form of tax relief available to businesses, which allows them to subtract some or all of the value of a particular asset from their profits before calculating the amount of tax owed. In other words, businesses can use capital allowances to reduce their taxable income by deducting the value of qualifying assets.
You can claim capital allowances on:
- equipment
- machinery
- business vehicles, for example vans, lorries or business cars
Super-deduction Replacement
As a replacement for the super-deduction, ‘full expensing’ (effectively 100% tax relief, called a ‘First Year Allowance’ (FYA)) will be available to companies incurring expenditure on new qualifying plant and machinery between 1 April 2023 and 31 March 2026. The qualifying criteria is quite broad although there are exclusions, including cars and features integral to a building (for example, heating systems).
With regard to ‘integral features’, a smaller 50% FYA will be available. Subsequent disposals of assets on which one of these FYAs has been claimed will trigger a clawback of tax relief at a rate of 100% or 50% of the disposal proceeds, depending on the rate of the original relief. These new FYAs will mainly be of interest to companies that have already fully utilised their £1million AIA.
The separate 100% FYA for electric vehicle charge points remains available for unincorporated businesses and companies until Spring 2025.
Contact Us
If you have any questions about the super-deduction tax relief, please get in touch.
Zoo Accounting