Chartered Accountants & Business Growth Specialists

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Super Deduction (Capital Allowance)


Super Deduction (Capital Allowance)

The government has offered unprecedented support for businesses during the Covid pandemic and resulting lockdowns. Even so, pandemic-related economic shocks and the accompanying uncertainty have chilled business investment.


This super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest in productivity-enhancing plant and machinery assets that will help their business to grow.

Here are the key points;

  • Super-deduction is a new 130% first year capital allowance for qualifying plant and machinery assets (and there’s a 50% first year allowance for qualifying special rate assets).
  • Capital allowances let taxpayers write off the cost of certain capital assets against taxable income.  They take the place of accounting depreciation, which is not normally tax deductible.  Capital allowances are deducted when computing taxable profits.
  • The super-deduction started on 1st April. It applies to companies only and is for the purchase of new items (not cars).  It ends on 31 March 2023.
  • There is an allowance of 130% but it goes down to 50% where the new kit is an integral feature (heating, plumbing, lifts etc).
  • The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest. 

It sounds great but there is a health warning. 

Buying kit now saves tax at 19%.  From April 2023 corporation tax goes up to 25%.  So, in theory, buying kit now and getting tax relief at 19% on 130% equates to waiting and getting relief at 25% on 100%.

130% now is great, BUT if the individual asset is sold we have to include 130% of the proceeds which would be taxed at either 19% of 25% depending on timing.

Not so great if the residual value is high.

There’s lots of detail behind the headlines.  If you have any questions or if you want to discuss it in more depth, please call Sara Morris, our Head of Tax Services on 01432 370572.