Super-deduction: capital allowance 2.0

From 1^st April 2021 to 31^st March 2023 businesses can benefit from a new way of accounting for capital allowances, called ‘super-deduction’. This will allow those companies which invest in plants and machineries to deduct from their profits 130% of the capital invested. In practice, this will save 25p off company corporation tax due for every £1 of qualifying spending.

However, there will surely be conditions to meet to be able to benefit from the super-deduction. Rigorous book-keeping records to track proofs of investments will be essential for instance. But most importantly, businesses need to make sure to not dispose of the asset before the end of the regime. Should they not consider this prerogative and dispose of the asset (on which the super-deduction was claimed) before 31^st March 2023, they will have to consider the possibility of paying taxes equal to, or even higher than the amount previously invested.

It is still not clear what the treatment of those assets, such as software which firms develops internally and then capitalise as intangible assets in their balance sheets, would be. In fact, the development costs can usually be capitalised deducting from companies’ profits through the classic capital allowance method. Anyway, HMRC has not provided any clarification about it yet.

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Author

Marco Mittica