Super Deduction Scheme – All You Need To Know

From the 1st of April 2021, businesses investing in qualifying plants and machinery become qualified for getting a massive first-year capital allowance of 130%. No wonder, this super attractive tax relief offered by the UK government is popularly known as the Super Deduction Scheme. It will be valid up to 31 March 2023. The objective is to boost business investment for a fast post-Covid economic recovery. However, this capital allowance reduction applies only to businesses subject to the corporation tax. So, individuals, sole traders, partnerships, and LLPs can not avail of this benefit. Additionally, businesses investing in qualifying special rate assets will also enjoy a 50% first-year capital allowance!

What are capital allowances?

A capital allowance is an allowance that U.K. or Irish businesses can claim against their taxable profit. Capital allowances may be claimed on most assets purchased for use in a business. This may range from equipment and research costs to expenses for building renovations. Till now, two types of main capital allowances- Writing Down Allowances (WDAs) and Structures and Buildings Allowances (SBA) were in existence. While the former capital allowances are for plant & machinery, the latter is limited to encompassing the construction and renovation cost of non-residential structures and buildings. So, this super deduction scheme will offer a generous new kind of capital allowance likely to stimulate business investment in the United Kingdom by lowering the corporational tax bills.

What are qualifying’ plants and machinery?

All tangible plants and machinery qualified for the 18% main pool rate of capital allowances are the qualifying plant and machinery for the super deduction scheme. Some of these can be as follows:

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

Relevant percentage

If the super-deduction expense occurs in a period that ends on or after 1 April 2023, a relevant percentage will apply instead of the super-deduction allowance. The process of calculating this percentage is easy. Businesses need to divide the days in the relevant period before 1 April 2023 by the total number of days in that accounting period. The result is now multiplied by 30, and then 100 is added to the final result to get the relevant percentage.

For example, if the accounting period of a company named Karmick Ltd ends on 31st December 2023 and its expenditure qualifying for the super deduction scheme is £1,000 as on 1st February 2023, the total number of days in the relevant period i.e. 90 days for three months (December, January, and February), the Relevant Percentage will be
={(90 days/ 365 days) x 30} + 100=107.39=107.4 %(approx)

Now, the qualifying super-deduction expenditure (£1000 ) is multiplied by the relevant percentage (107.4) to get the allowance Digitech Ltd is entitled to under the super-deduction scheme. This will be £1074.

Here, it is vital to mention that expenditure on buying a plant or machinery for leasing is not included in the scope of this scheme.