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130% Super Deduction

The 130% Super Deduction is being continually supported by the UK Government, along side the Capital Allowances Scheme until at least 31 March 2023.

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:

  • a 130% super-deduction capital allowance on qualifying plant and machinery investments.
  • a 50% first-year allowance for qualifying special rate assets.

The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.

As the UK’s largest capital allowances advisor, HMA Tax has provided commentary on the super deductions, and how business owners can claim this incredible incentive.

What are embedded capital allowances?

Simply put, Embedded Capital Allowance claims provide commercial property owners with up to half of their property’s purchase price back in tax relief.

Introduced within the Capital Allowances Act 2001, Embedded Capital Allowance claims are an incentive to encourage commercial property owners to continue to invest and reinvest into their businesses.

Whilst this relief can be worth upwards of hundreds of thousands of pounds for commercial property owners, many are still unaware they could be sitting on significant and untapped tax relief.

What changes with the super deduction?

From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:when a business invests in new plant and machinery, they can offset all of the cost against tax, plus an additional 30%.

This will allow companies to cut their tax bill by up to 25p for every £1 spent on items not limited to: fixtures, kitchens, bathrooms, security systems, fit outs and integral features, as well as the cost of alterations and demolitions to a building to install or remove plant and machinery items.

As an example, if your company incurs £1m of qualifying expenditure, it now will be able to deduct £1.3m (130% of the expenditure) against its taxable profits. Your company would then save £247,000 (£1.3m at 19%) off its corporation tax bill.

This change is a testament to the benefit of embedded capital allowance claims, as well as the mainstream underutilisation of claims by commercial property owners in recent years.

It’s clear that these changes further bolster what could be the greatest tax efficiency mechanism available to commercial property owners within the UK.

Tom Meredith, Managing Director of HMA Tax

We note that the super deduction coupled with the 50% first-year allowance (FYA) for special rate assets and a continuation of the Annual Investment Allowances of £1m. This will inevitably result in a significant increase in capital expenditure for many businesses.

Can I make retrospective claim?

Whilst the super deduction is being very much welcomed by commercial property owners, it will have no effect on the deduction rate for historic claims. That being said retrospective embedded capital allowance claims still provide immense value.

In recent months, 80% of our new clients have been unaware that they were sitting up to a £1m of pounds of tax relief prior to a claim estimation or consultation with one of our tax specialists .

For this reason, commercial property owners are engaging capital allowances specialists, such as HMA Tax, to make a claim on their behalf. This is due to requiring qualified teams of tax specialists and expert surveyors who can identify, value and claim this tax relief. All whilst understanding the associated statutory HMRC policy to make efficient and maximised claims.

The amount that can be claimed would surprise some, for example, our typical claim would be around 26.5% of the original purchase price of the property, which represents £250k of allowances in a £1m property, translating to £50k in direct tax refunds.