A new 130% first-year capital allowance for qualifying plant and machinery assets; and a 50% first-year allowance for qualifying special rate assets
Chancellor Rishi Sunak said: ‘With the lowest corporation tax in the G7, we need to do even more to encourage businesses to invest – for decades we have lagged behind our international peers. We need to unlock cash reserves so today I can announce the super-deduction. For the next two years when companies invest, they can reduce their tax bill with super deduction by 130% of the cost.
‘We’ve never tried this before in our country – the Office for Budget Responsibility (OBR) says it will boost investment by £20bn a year. It is worth £25bn for the two years it is in place, this is bold, unprecedented action.’
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.
The move has been widely welcomed by accountants and should act as a major investment catalyst.
Mark Minihane, EY UK & Ireland advanced manufacturing & mobility tax leader, said: ‘Manufacturing businesses will welcome the super-deduction incentive for investing in new equipment, and will be eager for more detail on what exactly this will cover. However, the two-year period for the relief is a little disappointing.’
Portia Pierrel, director at PwC said: ‘This measure will allow a temporary first-year allowance; including a super-deduction of 130% on most new plant and machinery investments which would have ordinarily qualified for 18% relief, and a first year allowance of 50% on most new plant and machinery investments which would have ordinarily qualified for 6% relief.
‘This will provide not only an accelerated timing benefit but additional tax relief on expenditure incurred. For example, we anticipate a manufacturer incurring £10m of expenditure on a new factory to receive an additional £1m of cash tax saving over the two-year period the measure is in place.
‘These measures will be welcomed by businesses and will encourage an immediate acceleration of investment, instead of holding off. It is expected to benefit capital intensive businesses, such as manufacturers and utilities companies in particular.
‘However, care will need to be taken in relation to certain assets, such as vehicles and leased plant and machinery, which may be subject to restrictions.’
Minihane expects to see further announcements on Tax Day on 23 March when the Treasury will release further consultations on new tax proposals. ‘While the Chancellor is understandably focused on Covid-19 relief, it’s important the UK is also positioned for long-term growth. A healthy and growing manufacturing industry could be the foundation for a post-pandemic recovery and a key part of the strategy for a post-Brexit world, while also creating skilled jobs throughout the supply chain. The sector will be hoping the 23 March tax consultations announcement provides further encouragement.’
Richard Godmon, tax partner at accountancy firm, Menzies LLP, said: ‘The Chancellor’s ‘super deduction’ is a record-breaking opportunity for businesses to reduce their corporation tax liability by 130% of the value of any investment they are making in the next two years on qualifying plant and machinery. This equates to a significant cash windfall for businesses and will help to bolster cash flow at a critical time.’