Super-Deduction Countdown

It is now only seven months until the Super-Deduction and Special Rate First-Year Allowance will end.

There are a number of key considerations that can help maximise the Capital Allowances available, and we are actively advising clients on some of the following aspects;

• The impact of a company’s year end – this will determine whether they will receive the full 130% Super-Deduction, or face a transitional percentage if their accounting period straddles 31 March 2023, when these reliefs will end (see the Example below).
• This can impact a company’s decision to expediate capital projects, ie. accelerate capex into an accounting period where the 130% enhanced rate is available.
• In some situations, the Super-Deduction will create tax losses which can be carried forward and relieved at a rate that is potentially higher than the current corporation tax of 19%.
• Given the relatively narrow timeline for the Super Deduction, 1 April 2021 to 31 March 2023, coupled with the slower process of submitting planning applications and gaining approval, larger capex expenditure projects will not necessarily start and finish within the window. However, we have found the uncapped nature of the Super-Deduction is particularly appealing to our larger/serial capital investors who are taking the opportunity to complete a number of simultaneous smaller renovation/refurb style projects, particularly for the office and hospitality sectors.
• For firms undertaking R&D activity and incurring capital expenditure, the interaction between Research & Development Allowances (RDAs) and the Super-deduction is particularly relevant.

Example:

Company A has a 31 December 2023 year end.

In this instance, even if qualifying expenditure is incurred before 1 April 2023, the Super-Deduction enhanced rate of 130% will be reduced as only three months of Company A’s accounting period falls within the qualifying window. As such the applicable Super-Deduction rate will be 107.5% (100% plus 30% x 3/12)

Contrast this with a Company B that has a 31 March 2023 year end. Company B will receive the full enhanced rate of 130% even though they might have incurred expenditure on the same day as Company A.