One of the chancellor’s more eye-catching proposals was the announcement of a ‘super-deduction’: an enhanced 130% first-year allowance for expenditure incurred on plant and machinery that ordinarily would be relieved at the 18% main rate writing-down allowance. For special rate assets, a 50% FYA will be introduced. The new allowances will have effect for qualifying expenditure incurred on and after 1 April 2021 up to and including 31 March 2023 (with time-apportionment for accounting periods straddling the end date) and there appears to be no limit on the amount of qualifying expenditure.
Second-hand goods, and assets used wholly in a ring-fence trade (which already benefit from a 100% allowance) will be excluded, as will expenditure incurred after 1 April where the contract was entered into before 3 March 2021 (ie the date of the announcement). The general exclusions for qualifying FYAs under CAA 2001 s 46 will also apply (for example, cars, leases, discontinued trade).
Melissa Geiger, KPMG UK’s head of tax policy, noted that the super-deduction ‘is likely to benefit all businesses that are increasing their spend on capital equipment, a kind of “splash out to help out” scheme’.
Matthew Hodkin, partner at Norton Rose Fulbright, commented that the measure ‘will incentivise businesses to bring forward qualifying investments’, particularly ‘the development of capital-intensive projects, such as windfarms and battery storage plants’.
The draft Finance Bill 2021 legislation for the new allowances sets out a number of qualifying conditions, including that the expenditure is ‘incurred by a company within the charge to corporation tax’ and so seemingly will not be available to unincorporated businesses. The definition ‘super-deduction expenditure’ is also explicitly set out in the legislation.
Matthew Hall, partner at Azets, points out that the super-deduction is ‘super-complex’, noting that capital expenditure already committed before the date of the announcement will not qualify, even if the date of the expenditure is delayed.
In his speech, the chancellor accidentally suggested that a company’s ‘tax bill’ would be reduced by 130% of the value of the investment. Perhaps more realistically, the Budget Red Book confirms that the amount of tax actually relieved will be 25p for every pound invested. In other words, for a £10m qualifying investment, total taxable profits will in effect be reduced by £13m which, at the 19% corporation tax rate, will give relief of £2.47m.
Toby Ryland, partner at HW Fisher, points out that ‘an item that costs £100 will have an effective cost to the business of £75.30 – so the government is funding almost 25% of the cost of the business’s capital expenditure’, and suggests that, as the super-deduction applies only to items purchased between 1 April 2021 and 31 March 2023, ‘businesses should delay any purchases planned for this month until 1 April 2021’.
Peter Rayney, president of the CIOT, suggests the new allowance will ‘help tip the balance in favour of some marginal investment proposals’ but cautions that ‘there has been too much tinkering with rules and rates of capital allowances, and that frequent changes more often than not bring complexity and uncertainty, and undermine investor understanding of, and confidence in, what is on offer at any one time [leaving] unresolved the question of what is the ongoing permanent level of support through tax system for corporate investment’.
Jeremy Coker, president of the ATT, points out that, although the super-deduction will be welcomed by large companies which already incur substantial expenditure on relevant capital assets, ‘for the vast majority of businesses, the ongoing future and level of the Annual Investment Allowance is likely to be considerably more important’ – particularly as the AIA is available to both companies and unincorporated businesses. The ATT urges the government urgently to clarify whether the £1m AIA limit will be extended beyond 31 December 2021.
One of the chancellor’s more eye-catching proposals was the announcement of a ‘super-deduction’: an enhanced 130% first-year allowance for expenditure incurred on plant and machinery that ordinarily would be relieved at the 18% main rate writing-down allowance. For special rate assets, a 50% FYA will be introduced. The new allowances will have effect for qualifying expenditure incurred on and after 1 April 2021 up to and including 31 March 2023 (with time-apportionment for accounting periods straddling the end date) and there appears to be no limit on the amount of qualifying expenditure.
Second-hand goods, and assets used wholly in a ring-fence trade (which already benefit from a 100% allowance) will be excluded, as will expenditure incurred after 1 April where the contract was entered into before 3 March 2021 (ie the date of the announcement). The general exclusions for qualifying FYAs under CAA 2001 s 46 will also apply (for example, cars, leases, discontinued trade).
Melissa Geiger, KPMG UK’s head of tax policy, noted that the super-deduction ‘is likely to benefit all businesses that are increasing their spend on capital equipment, a kind of “splash out to help out” scheme’.
Matthew Hodkin, partner at Norton Rose Fulbright, commented that the measure ‘will incentivise businesses to bring forward qualifying investments’, particularly ‘the development of capital-intensive projects, such as windfarms and battery storage plants’.
The draft Finance Bill 2021 legislation for the new allowances sets out a number of qualifying conditions, including that the expenditure is ‘incurred by a company within the charge to corporation tax’ and so seemingly will not be available to unincorporated businesses. The definition ‘super-deduction expenditure’ is also explicitly set out in the legislation.
Matthew Hall, partner at Azets, points out that the super-deduction is ‘super-complex’, noting that capital expenditure already committed before the date of the announcement will not qualify, even if the date of the expenditure is delayed.
In his speech, the chancellor accidentally suggested that a company’s ‘tax bill’ would be reduced by 130% of the value of the investment. Perhaps more realistically, the Budget Red Book confirms that the amount of tax actually relieved will be 25p for every pound invested. In other words, for a £10m qualifying investment, total taxable profits will in effect be reduced by £13m which, at the 19% corporation tax rate, will give relief of £2.47m.
Toby Ryland, partner at HW Fisher, points out that ‘an item that costs £100 will have an effective cost to the business of £75.30 – so the government is funding almost 25% of the cost of the business’s capital expenditure’, and suggests that, as the super-deduction applies only to items purchased between 1 April 2021 and 31 March 2023, ‘businesses should delay any purchases planned for this month until 1 April 2021’.
Peter Rayney, president of the CIOT, suggests the new allowance will ‘help tip the balance in favour of some marginal investment proposals’ but cautions that ‘there has been too much tinkering with rules and rates of capital allowances, and that frequent changes more often than not bring complexity and uncertainty, and undermine investor understanding of, and confidence in, what is on offer at any one time [leaving] unresolved the question of what is the ongoing permanent level of support through tax system for corporate investment’.
Jeremy Coker, president of the ATT, points out that, although the super-deduction will be welcomed by large companies which already incur substantial expenditure on relevant capital assets, ‘for the vast majority of businesses, the ongoing future and level of the Annual Investment Allowance is likely to be considerably more important’ – particularly as the AIA is available to both companies and unincorporated businesses. The ATT urges the government urgently to clarify whether the £1m AIA limit will be extended beyond 31 December 2021.
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