Super Deduction – Temporary First Year Allowances - Don’t miss out!

Stephen Oates


Super Deduction – Temporary First Year Allowances - Don’t miss out!

In a measure to boost business expenditure and encourage investment to help with the economic recovery following the pandemic the Chancellor announced the introduction, on 3rd March 2021, of two new temporary first year allowances (FYA).  The terms given to these new FYA were the super-deduction and the SR allowance and the hope is that these will act as an incentive for businesses to start spending again.

The super-deduction gives a 130% FYA for expenditure on new plant and machinery (P&M) that would normally qualify for the 18% main pool rate.

The SR allowance gives a 50% FYA for expenditure on new P&M that would normally qualify for the 6% special rate pool.

Unlike the Annual Investment Allowance (AIA), which has a current annual limit of £1 million, there is no limit on the expenditure which will qualify for the Super deduction or the SR allowance.

The table below shows how these rates compare with what is currently available.

The key conditions for the super-deduction or the SR allowance to apply are:

  • The expenditure must be incurred in the period 1 April 2021 to 1 April 2023 under a contract entered into, on or after 3 March 2021;
  • The expenditure must be incurred by a company (neither allowance applies to an individual, partnership or LLP);
  • The P&M must be unused and not second hand; and
  • There are a number of exclusions including leased assets and car.

However, in relation to leased assets an amendment was made to ensure that property lessors are not prohibited by the general exclusions on P&M for leasing from claiming the super-deduction. This is welcome news to the Hotel and Care Home industries who commonly operate a Propco/Opco structure.

Whenever assets are sold that have qualified for any capital allowance a calculation needs to be done which may result in a balance allowance or balancing charge.  There are special rules on how these calculations are done where a super deduction asset or SR allowance asset is disposed of. 

Given the above and specifically the different rates shown in the above table, there will be planning considerations in order to decide on the most effective way to claim capital allowances.  For help and advice on the above complexities please do not hesitate to get in contact with us.  Look out for our next blog which will show practical examples.

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