New 130% ‘super deduction’ for investment into plant and machinery

The new 130% ‘super deduction’ for investment into plant and machinery could be very useful, but there are important points contained within the “small print” that require careful planning.

The following example, which has been prepared by HMRC, clearly shows the possible appeal of the new tax allowance.

A company spends £10m on qualifying assets.

[i] Under the previous system, the possible tax saving = £497,800.

[ii] Under the NEW system, the possible tax saving = £1,470,000.

Although HMRC chose £10m for their example, the same principle applies for £10k, or £100k investment.

Most investment in new plant and machinery expenditure made by a trading company incurred between 1 April 2021 and 31 March 2023 will qualify for this new 130% ‘super deduction’.

Only new, not second hand, assets qualify.

Cars are excluded, but commercial vehicles used for trading purposes are included.

The ‘super deduction’ is only available to Companies to offset Corporation Tax: it is not available to Sole Traders, Partnerships or LLPs.

Landlords do not qualify for the deduction when investing in construction of a new property or refurbishment of an existing property which forms part of their investment portfolio.

The capital investment may lead to a tax loss, which we can carry forward to offset against a future corporation tax liability.

Sale of any asset which qualified for the ‘super deduction’ could result in a balancing charge, which would push up the company’s taxable income.

This is an opportunity to invest in your company’s assets at the same time as reducing the corporation tax bill by a significant amount.

Get in touch if you are contemplating any form of capital investment and we will review with you the tax and cash-flow options, savings, and possible pitfalls.