Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Efficiency could be underpinned by Super-deduction tax

In the March Budget, Chancellor Rishi Sunak announced ‘super-deduction measures’ which mean that businesses can deduct 130% of their tax bill on capital expenditure connected with plant, machinery and efficiency work.

The government aims to incentivise businesses to make additional investments and increase spending, in a bid to improve productivity.

Under the Super-deduction, for every pound a company invests in qualifying plant and machinery, taxes are cut by up to 25p. It covers investments incurred from 1 April 2021 until the end of March 2023, and offers 130% first-year relief on qualifying investments up to a £1 million threshold.

Why has it been introduced?

The Government’s announcement stated: “Since the Covid-19 pandemic, existing low levels of business investment have fallen, with a reduction of 11.6% between Q3 2019 and Q3 2020.

“Much of the UK’s productivity gap with competitors is attributable to our historically low levels of business investment compared to our peers. Weak business investment has played a significant role in the slowdown of productivity growth since 2008.

“Making capital allowances more generous works to stimulate business investment. As a result, these measures can promote economic growth and counter business cycles. The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.”

What qualifies for Super-deduction?

The following assets are examples of what qualifies for the Super-deduction:

  • Solar panels
  • Computer equipment and servers
  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Office chairs and desks
  • Electric vehicle charge points
  • Refrigeration units
  • Compressors
  • Foundry equipment

A company incurring £1m of qualifying expenditure decides to claim the super-deduction. Spending £1m on qualifying investments will mean the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits. Deducting £1.3m from taxable profits will save the company up to 19% of that – or £247,000 – on its corporation tax bill.

For more information, see the Government’s factsheet here.

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