Super deduction capital allowance

The government's spring Budget introduced the 130 per cent super deduction capital allowance with the aim of encouraging businesses to make additional investments and to bring planned investments forward. 

The new allowance aims to boost UK business investment. This was low in comparison with our international peers before the Covid-19 crisis hit. Since the pandemic, investment has fallen further with a reduction of 11.6 per cent between Q3 2019 and Q3 2020. (HMT 2021). The government believes the UK's low levels of productivity relative to our competitors is linked to low levels of investment. Improved investment means increased productivity and a stronger economy.

The allowance is available for expenditure incurred from 1 April 2021 until the end of March 2023. Companies can claim 130 per cent capital allowances on qualifying plant and machinery investments including computer hardware, which essentially gives them 25p off tax bills for every £1 spent on qualifying investment.

There are several conditions which must be met for expenditure to qualify for the super-deduction, as well as the timeframe. These include that:

  • expenditure is incurred by a company subject to Corporation Tax
  • the plant or machinery is unused and not second-hand
  • the investment is not financed through leasing (e.g. fleet vehicles or rented equipment). More detail is available at  

The Budget also included three other capital allowance measures:

  • The 50 per cent first-year allowance (FYA) for special rate (including long life) assets until 31 March 2023 for companies
  • Annual Investment Allowance (AIA) providing 100 per cent relief for plant and machinery investments up to its highest ever £1 million threshold, until 31 December 2021
  • Within Freeport tax sites a new Enhanced Capital Allowances (ECA+) and increased level of Structures & Buildings Allowance (SBA+) for investments until 30 September 2026.

Some experts have seen the super deduction tax allowance as a way of sweetening the pill in advance of an increase in corporation tax from 19 per cent to 25 per cent due in April 2023.  However, there is some logic in mitigating the incentive to delay investment until tax rates rise. Many businesses with medium-term investment strategies may well bring these forward and provide some support for the recovery. Nonetheless, the rules around disposal of assets purchased using the super deduction are complicated. Businesses will need to consider both the timing of making investments but also the lifetime of any asset and plans for disposal.

Businesses wishing to benefit from the super deduction capital allowance may also look to their finance providers for support. The Recovery Loan Scheme launched on 6 April 2021 could be useful in this respect.

As always with new initiatives, it will be essential to get good advice. There is already a lot of material available including this overview from PwC and insight from the Institute of Chartered Accountants in England and Wales (ICAEW).