Your Super-Deduction Guide
July 14, 2023
Who is likely to be affected?
Companies within the charge to Corporation Tax who invest in plant and machinery on or after 1 April 2021.
General description of the measure
This measure will temporarily introduce increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
- A super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
- A first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
The measure also temporarily amends the rules covering expenditure incurred on plant and machinery used partly in a ring fence trade in the oil and gas sector.
This measure is designed to stimulate business investment. It does so by increasing the incentive to invest in plant and machinery by offering higher rates of relief than were previously available.
Background to the Measure
Capital allowances allow businesses to write off the costs of tangible capital assets, such as plant or machinery, against their taxable income. They take the place of commercial depreciation, which is not an allowable tax deduction.
First-year allowances allow enhanced rates of relief for certain plant and machinery investments, providing claims are made in the period the expenditure is incurred.
The super-deduction is an enhanced first-year allowance providing an allowance exceeding the cost of the asset.
Detailed Proposal Operative date
The measure will have effect in relation to qualifying expenditure from 1 April 2021 and will exclude expenditures incurred on contracts entered into prior to Budget day on 3 March 2021.
Part 2 Capital Allowances Act 2001 (CAA 2001) sets out the current law for plant and machinery allowances.
First-year qualifying expenditures are currently contained within Chapter 4, Part 2, CAA 2001 and the allowances for these expenditures set out at section 52, Chapter 5, Part 2 CAA 2001.
General exclusions to first-year allowances are within s46.
Chapter 5 contains provisions on pooling, disposal events and disposal values. Chapter 17 contains anti-avoidance provisions which apply to first-year allowances. Proposed Revisions
Legislation will be introduced in Finance Bill 2021 to amend Part 2 CAA 2001 to bring in the super-deduction, an enhanced temporary 130% first-year allowance for main rate assets, and a 50% first-year allowance for special rate assets.
Certain expenditures will be excluded. The general exclusions at s46 will apply. In addition, there will be exclusions for used and second-hand assets and expenditures on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021. Assets used wholly within a ring fence trade will be excluded from the super-deduction, as they already have a 100% allowance, with assets used partly in a ring fence trade temporarily qualifying for a 100% first-year allowance.
Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.
The rate of the super-deduction will require apportioning if an accounting period straddles 1 April 2023. The rate should be apportioned based on days falling prior to 1 April 2023 over the total days in the accounting period.
Amendments will be made to Chapter 5 to bring in new disposal rules that will apply to assets that have been claimed to these allowances. Disposal receipts should be treated as balancing charges (taxable profits), instead of being taken to pools. The calculation includes rules which treat only part of the disposal receipt as a balancing charge, if part of the original expenditure is claimed by these temporary allowances, or part is claimed by other capital allowances.
Further, for assets that have been claimed under the super-deduction, the disposal value for capital allowance purposes should take the disposal receipt and apply a factor of 1.3, except where disposals occur in accounting periods straddling 1 April 2023, resulting in a factor lower than 1.3. This rule does not apply to the 50% first- year allowance for special rate expenditures.
An anti-avoidance provision applies to counteract arrangements which are contrived, abnormal, or lacking a genuine commercial purpose and existing rules at Chapter 17 apply, including the exclusion of connected party transactions from first-year allowance
Summary of Impacts Exchequer impact (£million)
|2020 to 2021||2021 to 2022||2022 to 2023||2023 to 2024||2024 to 2025||2025 to 2026|
These figures are set out in Table 2.1 of Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2021.
This measure will have a positive impact on business investment for the period that it will apply. It will do so by reducing the tax-adjusted cost of capital for millions of companies (large and small) investing in qualifying plant and machinery assets.
Impact on Individuals, Households and Families
There is no impact on individuals as this measure only affects businesses. This measure is not expected to impact on family formation, stability or breakdown.
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a significant impact on an estimated 2.8 million companies that incur qualifying expenditure on plant and machinery. One-off costs will include familiarisation with the change and could include updating software to account for the temporary reliefs. The one-off cost for all businesses is estimated to be £63 million.
Continuing costs could include considering the correct calculation when disposing of plant and machinery assets. The total continuing administrative burden for business disposing of assets is estimated to be £16 million per year. The costs could increase year on year as more businesses dispose of these assets but over the longer term these costs will reduce to zero.
This measure could negatively impact customer experience as the change requires additional tax admin tasks to be completed when assets are disposed. To support, clear guidance will be provided in the Capital Allowances Manual.
This measure is not expected to impact on civil society organisations. Estimates of compliance costs are shown in the following table: Estimated one-off impact on administrative burden (£million)
Estimated continuing impact on the administrative burden (£million)
|Continuing average annual impact||(£million)|
|Net impact on annual administrative burden||+16|
Operational impact (£million) (HMRC or other)
This measure will have an operational impact on HMRC, including staff resources and changes to IT systems and guidance. As approximately 2.8 million companies could claim this relief, the costs are estimated to be £10.2 million.
Other impacts have been considered and none have been identified.
Monitoring and Evaluation
The measure will be monitored through information collected from tax returns and through regular engagement with businesses and their representative bodies.
If you have any questions about this change, contact HMRC on email: email@example.com.