UK Budget 2021: Super-Deduction for Business Assets

It’s no doubt that the 2021 Budget was as important as it ever is and then some. Given the year that 2020 was and all the struggles that faced businesses, employers, workers and more, we really needed some important answers on future support and a roadmap to the recovery of our economy.

One of the highlights from this year’s Budget was the newly introduced Super-Deduction, which I’ll explain in more detail.

This will take effect from 1 April 2021 and last until 31 March 2023 giving business a two year window to take advantage of the deductions to boost their investment, productivity and stimulate business growth .

What is the super deduction?

You may already know about capital allowances for business. This is a way of encouraging businesses to invest in new plant and machinery. HMRC allow qualifying expenditure on business assets to be written down each year and a deduction taken a a capital allowance to reduce taxable trading profits.

In an attempt to stimulate the economy and promote business growth the Budget of 2021 sets out the following changes to allowable deductions:

  • The Super-Deduction – which is a 130% deduction on qualifying First-year plant and machinery (previously 100%)
  • First Year Allowance of 50% on Special rate (and long life) assets.
  • Annual Investment Allowance (AIA) of 100% on plant and machinery up to £1 million expenditure until 31 December 2021
  • Freeport Tax Sites – Enhanced Capital Allowances and increased levels of Structures and Buildings Allowance.

What Assets Qualify for Capital Allowances?

There are a lot of assets that can qualify for these deductions and every business owner should be thinking of ways to take advantage of unlocking the new opportunities to help grow your business.

The list is not exhaustive and in fact HMRC have saw it easier to list the assets that do not qualify. If you are unsure, ask an adviser who is experienced in dealing with capital allowances.

In short, most tangible assets used in your trade or business could be classed as plant and machinery for the capital allowance deductions but not all qualify for the super deduction or FYA special rate 50% deduction.

A few that would qualify are mentioned below:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks,
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment

What Difference Will This Make?

Depending on your tax rate it make make a fair bit of difference. Let’s look at a comparison where a company buys £5 million of qualifying plant and machinery. :

Under the new regime the deduction are higher. But please do speak with an experienced adviser. This area of tax is complex and careful planning should be taken to meet the eligibility criteria before rushing out to buy a lot of business assets.

More on the eligibility criteria can be found on the HMRC website.

Is Software and IT Equipment Included?

In short – Yes. Software and IT equipment can be considered as plant and machinery that qualify for the new first year allowance of 50% and the super-deduction. HMRC have specifically stated in a Questions and Answer session that these assets can be included in the new regime.

This area of tax planning in itself will require some more detailed discussion from what is included already because the Software itself can be included in the Intangible Fixed Assets (IFA) regime for taxation.

A business with qualifying expenditure on Software wishing to use the super-deduction would need to elect to remove the asset from the IFA tax regime.

This may or may not be more beneficial long term and should be considered carefully with a tax adviser who help you make a well informed decision.

In Conclusion

Planning and advice should always be taken but many companies be looking to plan their investment in new assets over the next two years to take advantage of this temporary relief allowed by the UK Government.

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