Can your business claim a super deduction?

If your business has spent money on plant and machinery and it is subject to corporation tax, then it may qualify for a super deduction which is a temporary allowance you do not want to miss.

Qualifying purchases will need to have been made between April 1, 2021, and April 1, 2023, and will be valid as long as you did not buy the plant or machinery due to a contract you entered into before March 3, 2021.

It is also possible to claim a special rate first year capital allowance – which is another temporary allowance – if you have bought qualifying or plant machinery as above.

Qualifying plant and machinery

There are a few rules, as you might expect, that your business needs to comply with to ensure your plant or machinery qualifies for these allowances. One of the key rules is that the machinery must be new, not used or second-hand.

It also cannot be given to you as a gift, it cannot be a car as these will not qualify for this allowance, and it cannot be bought to be leased to someone else. The exception to this final rule is if it is background plant or machinery within a building. It also cannot be purchased during the period in which the business ceases activity.

What can I claim a super deduction for?

A super deduction can be claimed on a variety of work tools, including:

  • Machines such as computers, printers, lathes and planers.
  • Office equipment such as desks and chairs
  • Vehicles such as vans, lorries and tractors – but not cars.
  • Warehouse equipment such as forklift or pallet trucks and stackers.
  • Tools such as ladders or drills.
  • Construction equipment, such as excavators, compactors and bulldozers.
  • Some fixtures, including kitchen and bathroom fittings and fire alarm systems.

Source: Gov.uk

There are some other rules to be aware of, which is why it is best to speak to your accountant to help you make the most of this super deduction, rather than trying to go it alone.

To see how much a business can claim, let’s look at an example which is on Gov.uk. A company called Alpha Ltd bought a lathe for £10,000 on December 1, 2021. It has a calendar year end accounting period.

In the accounting period ending December 31, 2021, Alpha Ltd can claim a super deduction of 130% for this expenditure, giving them a claim of £13,000.

What about the special rate first year allowance?

If a company buys a qualifying item in its first year, then it can claim the special rate first year allowance. Again, there is an example of how much this is worth on Gov.uk. A company called Bravo Ltd buys a solar panel for £10,000 on December 1, 2021, which is for installation at its business premises and will be used in its business.

In the calendar year ending December 31, 2021, Bravo Ltd can claim the 50% special first year allowance, which gives a rebate of £5,000 for this expenditure. The remaining balance can be added to the special rate pool in the following accounting period and writing down allowances can also be claimed, according to the Gov.uk information.

Again, there are specific rules about what items qualify for the special rate first year allowance, so it is best to work with an accountant to ensure you only claim what you are allowed to.

Let us help you

Both allowances can be complex to navigate, especially as there are a number of specific rules surrounding what type of plant and machinery you can claim for. So, let us do the hard work for you and get in touch. We will make sure you are getting everything you are entitled to, so you can legitimately reduce your tax bill.