Super-deduction extended

The “super-deduction” is a new tax incentive for business to purchase equipment. The qualifying conditions have now been relaxed to allow the tax break for some previously excluded items. What’s the full story?

Super-deduction. In Budget 2021 the Chancellor announced a temporary tax break to encourage businesses to buy new equipment. The incentive is a capital allowance (CA) deduction equal 130% of the equipment’s cost. Assets which normally only qualify for the lower CA of 6% per annum aren’t entitled to the 130% deduction but can claim an initial deduction to 50% of the cost; this is called the special rate first year allowance (SR). Only companies can claim the super-deduction or SR.

Leased equipment. Some types of asset were initially excluded from the super-deduction, including leased assets. According to tax and accountancy bodies, in some circumstances this unfairly prevented many businesses from being able to claim the tax break. The good news is that the government has conceded the point and amended the draft legislation to allow the super-deduction for certain types of leased asset.

Who will benefit? The amendment allows companies to claim the super-deduction for so-called background plant and machinery (equipment) included in buildings. According to the Institute of Chartered Accountants in England and Wales, the new rules ensures “that the allowances are available where a company purchases or constructs a building and fits it out with fixtures and other assets that contribute to the functionality of the building”, as long as the building is for commercial use. Tip. The types of leased asset that now qualify for the super-deduction or SR as a result of the amendment include, but are not limited to, water, heating and lighting systems, lifts, safety and fire equipment. Essentially, the cost of any background equipment included in a building now qualifies.

The exclusion which prevented companies from claiming the super-deduction or special rate allowance for leased assets included in buildings, e.g. heating and lighting systems, has been removed.