What is the super-deduction?
The super-deduction is a tax break for UK businesses. It allows them to claim 130% of expenditure for business equipment against their taxable profits.
The super-deduction is a new form of capital allowance. Learn more about the benefits of capital allowances and how to claim them.
The super deduction applies to any new purchases of eligible plant and machinery products between April 1st 2021 and March 31st 2023. The deduction is made in the year the equipment was first purchased. Any business that pays corporation tax can use the super-deduction.
Which expenses are eligible for the super-deduction?
The majority of tangible assets can be claimed under the super-deduction. A few examples of eligible purchases include:
- Computers, printers, TV’s, cameras, and other technology equipment
- Office chairs, desks, couches, and other office equipment
- Solar panels, electric car charging ports, and other environmental technology
- Tools, cranes, ladders, compressors
- Trucks, tractors, forklifts, and other machinery
Only purchases of new equipment can be claimed. Unfortunately, purchases of used equipment are not eligible under the super-deduction.
However, not all purchases of new tangible assets are eligible. A few notable exceptions include cars, buildings, and any equipment that is offered for hire/rent.
How to calculate your super-deduction savings
The super-deduction allows businesses to claim 130% of expenditure which will generate much larger tax savings than the previous method of using the AIA and WDA tax relief. The super-deduction will offer up to 19% tax savings of the 130% expenditure.
As an example, a business has spent £100,000 on eligible purchases throughout the 2021/2022 tax year. They can claim 130% (£130,000) with the super-deduction. The tax savings will be up to 19% of that amount (£24,700).
- Eligible expenditure: £100,000
- Super-deduction (130%): £130,000
- Tax savings (19%): £24,700
Below, we have provided a simple list to check if your purchase is eligible for the super-deduction. All criterion must apply for you to use the super-deduction.
- Your business pays corporation tax
- The purchase is for new plant & machinery products (not used)
- The purchase was made between April 1st 2021 and March 31st 2023
- The purchase is not excluded from the super-deduction (e.g. cars & buildings)
- You are claiming the deduction the year it was first purchased
- You are not planning to rent or sell the asset
If any of these do not apply to your purchases, there may be other ways to claim them on your tax return. You should contact your accountant for the best advice.
Why was the super-deduction introduced?
The coronavirus pandemic has had a huge impact on businesses. Because of this, the amount of business investments has dropped significantly.
The Government introduced the generous super-deduction tax break to encourage businesses to purchase new equipment and bring future purchases forward.
The government has also announced that the corporation tax rate will be increased from 19% to 25% for medium and large-sized businesses from April 2023. The super deduction will hopefully soften the impact of this decision.
Therefore, the super-deduction was introduced to support businesses and jumpstart the economy.