‘Super-deduction’ on capital allowances


Starting from the 1st of April 2021, the government introduced a new ‘Super-deduction’ available on capital allowances that is due to run until 31st of March 2023. By taking advantage of the Super-deduction, limited companies can cut their corporation tax bill by up to 25p per £1 invested on qualifying plant & machinery assets. This was bundled along with a few other temporary measures, which include:

  • 130% super-deduction first-year relief on plant & machinery assets for companies until 31st March 2021
  • AIA to remain at £1,000,000 until 31st December 2021
  • A 50% first year allowance for special rate assets, to run until 31st March 2023

So how does the super-deduction work? If a company were to purchase a plant and machinery asset with the value of £10m using the previous method, they could claim the first £1m under the annual investment allowance, and the £9m remainder would be subject to with 18% writing down allowance, totalling a £2,620,000 deduction.

This would provide a total corporation tax saving of £497,800 at 19%. Using the new super-deduction, the full £10m value of the asset can be claimed in the first year, plus an extra 30% of the assets value to bring this to a total deduction of £13m.

This would provide corporation tax savings of £2,470,000 at 19%.

So, by using the super-deduction, companies will effectively be able to claim an extra 30% corporation tax relief on top of a full first year allowance for their qualifying assets. HMRC have provided a factsheet on this which can be read here.

Please note that this does not apply to the purchase of second hand plant and machinery.