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What is the tax super deduction?

Have you heard about the super deduction for capital allowances?

These capital allowances let taxpayers write off the cost of certain capital assets against taxable income. The new super deduction for capital allowances was introduced in the 2021 Budget and runs from 1st April 2021 right through to 21st March 2023.

While the super deduction is not available to partnerships and sole traders, to those companies that it is available, some huge savings are available. For example, eligible companies can claim 130% first year capital allowance on qualifying new and unused main rate plant and machinery for example.


What does this mean for your business?

So, let’s look at what super deduction capital allowances could mean for you and your business.

Traditionally speaking, the cost of capital assets is shown in the accounts as accounting depreciation. This means that it is not tax deductible. However, capital allowances enable businesses to deduct the cost of these capital assets from the taxable profits.


Types of Capital Allowances

There are two main types of capital allowances. These are WDAs and SBA.

The WDAs, also known as Writing Down Allowances are for plant and machinery. This covers most of the capital equipment used in trade. Meanwhile, the SBA, also known as Structures and Buildings Allowances covers the construction and renovation of non-residential structures and buildings.


Do I qualify?

It’s important to understand the qualifying purchased for the super deduction capital allowances. To be a qualifying purchase the costs must be incurred by a business, liable to corporate tax, on new and unused plant and machinery. The amount of capital allowance deduction is then dependent on the type of asset purchased by the business.

For example, for assets that ordinarily quality for the 18% main rate WDAs the deduction is equivalent to 130% of the expenditure with the super deduction. However, for those assets normally qualifying for the 6% special rate WDAs, and where an annual investment allowance is not claimed, the deduction or the year of purchase is equal to 50% of the expenditure.

There are some exclusions to the super deduction. These include the final period of trading, cars, most types of long-life asset and plant or machinery that has been leased out.


If you think your business could qualify for the super deduction capital allowances or you have any questions, call our team. We will be happy to answer any queries you have, and get the most from your accounts.

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