Key Changes to the Capital Allowances Super-Deduction Effective This Year

Listen to the MA & CO Podcast

Introduction

The super-deduction was a special tax relief introduced by the UK government in 2021. It was designed to help businesses invest in machinery and equipment by providing extra tax deductions. In 2023, however, there were some significant changes. The super-deduction ended, and a new allowance called full expensing was introduced. These changes can affect your business, so it is important to understand what they mean for you. Let's break down these key changes to the capital allowances and how they work.

1. Background on the Super-Deduction

The super-deduction was first introduced in April 2021 to encourage businesses to spend money on new plant and machinery. This tax relief allowed businesses to claim 130% of the cost of qualifying assets against their taxable profits. In simpler terms, for every £1 spent, businesses could reduce their tax by £1.30. This was a big incentive, especially for companies trying to recover from the impact of the pandemic.

The super-deduction was available until March 31, 2023, and applied only to new, unused assets that were directly used in the business.

2. Key Changes Implemented This Year

In April 2023, the super-deduction ended. It was replaced by full expensing and a 50% first-year allowance for some special assets.

• Full Expensing: This new scheme allows companies to deduct 100% of the cost of qualifying assets like plant and machinery in the year they buy them. This means businesses can reduce their tax bill immediately, which helps with cash flow.

• 50% First-Year Allowance: For some assets, such as integral features of buildings (like heating or air conditioning) or long-life assets, companies can claim 50% of the cost in the first year.

Aspect	Super-Deduction (April 2021 – March 2023)	Full Expensing (April 2023 – March 2026)
Deduction Rate	130% of qualifying expenditure on main rate plant and machinery	100% of qualifying expenditure on main rate plant and machinery
Special Rate Assets	50% first-year allowance for special rate assets	50% first-year allowance continues for special rate assets
Scope	Available for new and unused plant and machinery	Available for new and unused main rate plant and machinery
Timeframe	Applicable from April 1, 2021 to March 31, 2023	Applicable from April 1, 2023 to March 31, 2026
Tax Impact	Provided a 24.7p tax saving for every £1 invested	Provides a 25p tax saving for every £1 invested

3. Eligibility Criteria for New Allowances

The new capital allowances are aimed at businesses that invest in new and unused machinery. Here are some key points to remember:

• Who Qualifies? Companies that buy new plant and machinery qualify. This includes most equipment used for business purposes.

• Timeframe: To qualify, businesses need to spend on these assets between April 2023 and March 2026.

• Special Rate Assets: Things like integral features of buildings (e.g., electrical systems, air conditioning, or lifts) qualify for a 50% allowance in the first year.

4. Comparison Between Super-Deduction and New Allowances

The super-deduction offered a 130% deduction, which was higher than the new full expensing rate of 100%. However, with the increase in corporation tax to 25%, the tax saving for every £1 invested remains attractive.

Feature	Super-Deduction	Full Expensing
Deduction Rate	130%	100%
Tax Saving per £1	24.7p (at 19% corporation tax rate)	25p (at 25% corporation tax rate)

The super-deduction was a temporary measure, while the new scheme aims to provide a more long-term solution for encouraging business investments.

5. Implications for Businesses

If your business is planning on buying new machinery or equipment, these changes are important for you. Here’s how they can impact you:

• Immediate Tax Relief: You can claim 100% of the cost of new assets, which means you will see tax savings right away.

• Tax Planning: Because the super-deduction offered a higher deduction, companies that took advantage of it before March 2023 might have saved more. Now, the full expensing is simpler, but planning when to buy new assets is key.

• Special Rate Assets: The 50% first-year allowance can help if your business needs to invest in building improvements or other qualifying features.

To better understand how these changes affect your business, consider consulting with MA & CO Accountants. We can help you make the most of these allowances.

6. Steps to Claim the Allowances

Claiming these allowances is straightforward:

1. Identify Qualifying Assets: Make sure the items you are buying are new and used directly for business purposes.

2. Keep Records: Keep invoices and receipts for all qualifying purchases.

3. Include in Tax Return: When completing your corporation tax return, include the value of your qualifying assets under capital allowances.

For a more detailed breakdown on how to claim, check out our step-by-step guide on claiming capital allowances.

7. Recent Changes and Updates

The super-deduction ended in March 2023. Now, we have full expensing, which allows businesses to claim 100% of the cost of qualifying assets. Additionally, the 50% first-year allowance remains for special assets.

Change	Old Policy	New Policy
End of Super-Deduction	March 2023	Replaced with Full Expensing
New Deduction Rate	130% (Super-Deduction)	100% (Full Expensing)
50% Special Rate Assets	Continued	Available until March 2026

These changes are part of the government's goal to encourage businesses to invest and grow. For more information, take a look at our capital allowances advisory page.

8. Common Mistakes to Avoid

• Not Keeping Proper Records: You need to keep invoices and receipts for qualifying purchases.

• Confusing Old and New Rules: Remember that the super-deduction ended in March 2023. New purchases fall under the full expensing rules.

• Misunderstanding Special Rate Assets: Not all assets qualify for 100% deduction. Some items, like building features, only qualify for 50% in the first year.

To avoid mistakes, always consult with a professional accountant. MA & CO Accountants can help you get it right.

9. Expert Tips for Making the Most of Capital Allowances

• Plan Investments: If your business is thinking of buying new machinery, consider timing your purchases to take advantage of the full expensing period.

• Check Asset Types: Make sure you know whether your asset qualifies for 100% full expensing or if it is a special rate asset.

• Consult Professionals: These rules can be complex, and a tax professional can help you understand your options. MA & CO Accountants can offer guidance on optimizing your capital expenditure.

Conclusion

The changes from the super-deduction to full expensing are important for UK businesses that want to invest in new equipment. By understanding the differences and making the right moves, you can save on your corporation tax and improve your business’s cash flow.

If you need help with understanding these changes or planning for future investments, contact MA & CO Accountants for expert advice. We can help make sure you get the most out of the available allowances.

FAQs

1. What was the super-deduction?

• The super-deduction was a temporary tax relief introduced in April 2021, allowing businesses to deduct 130% of the cost of qualifying plant and machinery from their taxable profits. It was aimed at encouraging investment post-pandemic and was available until March 2023.

2. What is full expensing?

• Full expensing is a new capital allowance introduced in April 2023, allowing businesses to deduct 100% of the cost of qualifying plant and machinery in the year they purchase it. It helps businesses get immediate tax relief on their investments.

3. Are special rate assets eligible for full expensing?

• Special rate assets are not eligible for 100% full expensing but do qualify for a 50% first-year allowance. These include assets like integral features of buildings (e.g., heating and air conditioning systems).

4. How do I claim these allowances?

• You can claim these allowances through your corporation tax return. Ensure you keep proper records, including invoices and receipts, to support your claim. Including the value of your qualifying assets under capital allowances will help reduce your taxable profits.

5. Have the capital allowances changed recently?

• Yes, the super-deduction ended in March 2023, and full expensing was introduced starting from April 2023. The 50% first-year allowance for special rate assets continues until March 2026.

For more information, visit MA & CO Accountants and see how we can assist you with your capital allowance needs.