What is the capital allowance “Super deduction”?

The capital allowance ‘super deduction’ got a lot of attention in this year’s budget. It’s now being bought into practice for the current tax year and the next one. Here I’ll take a look at what it means in practice wiht some frequently asked questions.

What is the ‘super deduction’?

Any capital expenditure that your business incurs from 1st April 2021 to 31st March 2023 will mean you can claim a 130% deduction on your profits on qualifying main rate plant and machinery investments until 31 March 2023.

What does this mean in practice?

For many businesses all their capital spend will come under this qualification which means that they will be able to reduce the corporation tax they pay by 25p for every £1 they have spent on capital equipment.

Who can benefit from this?

The capital allowance super deduction only applies to corporation tax so it’s only those organisations that pay corporation tax that can benefit from this. In the vast majority of cases this means companies. Sole traders don’t pay corporation tax so it doesn’t apply to these businesses.

What if my company makes a loss?

It appears that this deduction will work in the same way as other capital allowances which means that the benefit can be carried forward into the next financial year and offset against future profits.

How do I claim this allowance?

This deduction can be claimed in the same way as other capital allowances when you or your accountant undertakes your corporation tax return.

Further Reading

If you’d like to know more HMRC have produced a useful fact sheet. To find out more about the 2021 budget and how it affected small businesses you may find this blog post useful

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