Managing Director Gateley Capitus
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Super deductions: Get the details right

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Aubrey Calderwood explains the purpose of the 130% super deduction, and what companies need to know to take advantage of this new form of capital allowance.

16th Mar 2021
Managing Director Gateley Capitus
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In Rishi Sunak’s Budget Statement on 3 March, he put in place some fiscal tax measures that he hopes will encourage investment and kick-start the economy in readiness for the post-pandemic, post-Brexit era.

What is a super deduction?

The much-vaunted super deduction allows companies to claim a 130% first year allowance (FYA) for investment incurred on ‘main pool’ items of plant and machinery acquired in the period between 1 April 2021 and 31 March 2023. This includes the more obvious items of plant and machinery like manufacturing equipment, machines and computers, but it also extends to items of main pool plant and machinery that are fixtures in properties.

When we think of investment in new plant and machinery, we must remember that the super deduction may also be available for a proportion of construction expenditure incurred on new or refurbished buildings. This point is often overlooked but it could be a stimulus to commence building works in the period.

New 50% FYA

Sitting alongside the super deduction is a 50% FYA for expenditure incurred on special rate pool items of plant or machinery, which includes integral features, solar panels and thermal insulation

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Replies (19)

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By jon_griffey
16th Mar 2021 15:57

This is going to be a lot of hassle. Clients will be pushing to have every stapler, screwdriver, hole punch and kitchen sink capitalised. There are also more nebulous things like internal software projects that it appears can be included.

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Lone Wolf
By Lone_Wolf
17th Mar 2021 00:18

A couple of points I'm unclear about form the article.

Number 1:

"Relief is time apportioned for accounting periods that straddle 1 April 2021 and 31 March 2023."

Is this correct? I had a read over the draft finance bill and it seems to have included a time apportioned amount for periods straddling 31 March 2023, but nothing for periods straddling 1 April 2021.

I've maybe missed it. Can you point me towards it please?

And if I'm correct about how it is worded, are we going to see a lot of 31 March 2023 year ends to avoid a reduced rate for periods straddling this date?

Number 2:

"because the super deduction and 50% special rate measures are FYAs, they are not pooled. "

Again, I'm not sure if this is correct. Are we supposed to have separate pools for FYA assets? I've always added them to either the main or special rate pool and claimed FYA from that. The HMRC guidance doesn't seems to suggest that a separate pool is required for FYA expenditure. See "If you originally claimed 100% of the item" on the following link: https://www.gov.uk/capital-allowances-sell-asset

Is this pooling requirement new for the super deduction? Or maybe I've missed something with FYA assets (oops!)

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Replying to Lone_Wolf:
Psycho
By Wilson Philips
17th Mar 2021 10:53

Re point 2, there is nothing that specifically says that the items are not pooled. However, because a sale will give rise to a balancing charge - regardless of the balance on the pool - the effect is to treat the assets as outside of the pool.

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Replying to Lone_Wolf:
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By norstar
17th Mar 2021 19:03

Lone_Wolf wrote:

A couple of points I'm unclear about form the article.

Number 1:

"Relief is time apportioned for accounting periods that straddle 1 April 2021 and 31 March 2023."

Is this correct? I had a read over the draft finance bill and it seems to have included a time apportioned amount for periods straddling 31 March 2023, but nothing for periods straddling 1 April 2021.

I'd also like to confirm this as I have clients who are planning on extending APs and spending big on 1st April to get a deduction for the "super period".

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By ABD
17th Mar 2021 11:31

Thanks Aubrey, which part of S46 excludes landlords/ property investors

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Replying to ABD:
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By ianmac2509
19th Mar 2021 10:53

A

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Psycho
By Wilson Philips
17th Mar 2021 10:50

"When an asset is sold in the period up to 31 March 2023, that could result in an immediate balancing charge, with 130% of the cost being clawed back and declared as taxable income"

That needs to be clarified.

First of all, a balancing charge will arise on the sale of any super-deduction asset, whether the asset is sold before or after 31 March 2023.

The amount of the balancing charge will be "up to" 130% of the cost.

Perhaps that is what was meant, but it's not clear from the wording.

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By IAT
17th Mar 2021 10:55

What about accounting software? Would super deduction apply? I am talking about a full solution software, including practice management, workflows, tasks, fees, billing and obviously compliance modules.

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By Natasha
17th Mar 2021 11:24

Is it likely that the 130% super deduction will be amended to apply to sole traders and partnerships? I wasn't aware that it applied to Limited Companies only which does seem unfair.

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Replying to Natasha:
Psycho
By Wilson Philips
17th Mar 2021 13:07

Is it fair that CT rates are to increase by up to 32% whilst income tax rates are forecast (for now) to remain unchanged?

Although not explicitly stated, the general opinion is that the 130% allowance is to encourage companies to invest in qualifying plant over the next couple of years rather than wait until they can get CT relief at 25%.

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Replying to Wilson Philips:
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By petestar1969
17th Mar 2021 17:25

I agree that the 130% deduction is to encourage asset purchases now while the CT rate is lower, but isn't the encouragement also there so that these businesses can make use of the new (back to the old days) 3 year loss carry back provisions by spending loads on plant and making losses?

Another reason IMO for the 25/26.5% rate is to encourage business owners to pay themselves a proper salary rather than rely on dividends. The 3 year loss carry back is also partly intended, I believe, to encourage a switch to proper salaries from 1 April 2021.

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By BJNATHAN
17th Mar 2021 12:45

Do we know if you can choose between choosing the AIA 100% or 130% SD? Does the AIA have to have been used first to access the SD?

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Replying to BJNATHAN:
Psycho
By Wilson Philips
17th Mar 2021 13:03

AIA and SD are mutually exclusive. One has the choice.

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By tonyaustin
17th Mar 2021 14:16

The superdeduction is to get companies to invest in plant now rather than wait until April 2023 when they will get 25% tax relief because of the new main rate of CT (I am ignoring small profit rates). 130% relief at a 19% tax rate is about equal to 100% at a 25% rate. If the asset is sold before the CT rate goes up, then the allowance will be clawed back based on 130% of proceeds. For periods straddling 1 April 2023, CT will be on part of the profits at 19% and part at 25% so the allowance is proportionately reduced. The allowance applies to pretty much everything that would qualify for an 8% writing down allowance if AIA wasn't claimed (superdeduction does not apply to used or second-hand plant). There is draft guidance, legislation and explanatory notes here
https://www.gov.uk/government/publications/new-temporary-tax-reliefs-on-...

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By L Haldane
29th Mar 2021 14:21

It is disappointing that this super deduction only applies to new assets.
I have a private coach hire client who was very excited by the announcement of this allowance but have had their hopes dashed by the small print of this new allowance as they tend to buy 3-5 year old buses for their fleet rather than brand new vehicles.
Same goes for my tradesmen clients as most go for 3 years old vans & pick-ups when changing their business vehicles.

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By Dr B
09th Apr 2021 11:18

I have read that the Super Deduction is not allowable for new assets purchased if they are going to be spot hired or sub hired to customers. Is that correct please?

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By Dr B
09th Apr 2021 11:18

I have read that the Super Deduction is not allowable for new assets purchased if they are going to be spot hired or sub hired to customers. Is that correct please?

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Replying to Dr B:
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By ABD
09th Apr 2021 12:29

yes excluded under S46

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Replying to ABD:
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By Dr B
09th Apr 2021 12:34

Many thanks ABD

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