The super deduction announced last week is super news, however, the devil really is in the detail. It seems that it is super news for trading businesses as opposed to property companies.
The headlines were: 130% first year super deduction capital allowances on plant and machinery in the main pool; and 50% first year super deduction capital allowances on integral features in the special rate pool.
After some debate this is how we expect the new measures will work:
- They apply to trading businesses, companies paying corporation tax only. They do not apply to partnerships, LLPs, and tax paying individuals.
- They apply to new and unused assets. They exclude purchases of second-hand assets such as existing properties. An incorporated trading business purchasing a brand-new property from a developer should benefit.
- They apply to capital expenditure incurred between 1 April 2021 and 31 March 2023 provided that a contract was entered into on or after 3 March 2021. This is irrespective of whether payment under the contract falls between these dates.
- The Annual Investment Allowance (AIA) of £1M is still available up to 31 December 2021.
- Care will be needed on any disposal or transfer which would be subject to corporation tax possibly at a higher rate than at present.
We will review further guidance when it becomes available for any changes or nuances.
Tax relief was also announced for capital expenditure on Freeports, for expenditure from 9 March 2021 to 30 September 2026, notably:
- Enhanced Structures & Buildings Allowances providing relief at 10%, as opposed to 3% under the current regime for SBA.
- Enhanced Plant and Machinery Allowances providing a first-year relief rate of 100% on plant and machinery, although it is not clear which pool it relates to.
Capital allowances are more important than ever following Rishi Sunak’s budget last week. We were pleased to be mentioned in an article in The Times on Friday 5 March on super deduction.
We submit that it pays to seek professional advice and that early engagement makes a difference. Wherever you are in the United Kingdom we would be very pleased to hear from you if we can help you particularly with the provisions announced last week.
