More details on the new super-deduction for equipment

In the Budget, on 3 March the Chancellor announced a new 130% tax relief for expenditure on new plant and machinery incurred between 1 April 2021 and 31 March 2023. It turns out that this new tax relief is only available to limited companies and the latest Finance Bill reveals a nasty sting in the tail when the equipment is sold, as the clawback on disposal is potentially at the same 130% rate. So, if a new item of plant cost £100,000 the company would be able to deduct £130,000 in arriving at taxable profits thus saving £24,700 in corporation tax at 19%. However, if the plant was sold for £80,000 on 1 April 2023 130% of the proceeds would be clawed back and £104,000 added to taxable profit which could result in up to £26,000 corporation tax payable at the new 25% rate. The claw-back rate reduces on a time basis from 1 April 2023 onwards, so it would be advisable to retain the asset long term.

The 130% rate does not apply to equipment such as air conditioning and central heating that normally qualify for a 6% writing-down allowance. Such “integral features” qualify for a special 50% first-year allowance for the same two-year period.

Please contact our Tax Experts on the details below to discuss the tax implications of major capital expenditure decisions.