“The super-deduction tax incentive provides a 130% first-year capital allowance for companies that invest in qualifying, brand-new plant and machinery assets (main-pool assets) between 1 April 2021 and 31 March 2023. Firms will also be able to take advantage of a 50% first-year allowance for qualifying special-rate assets.”

“The main exclusions include:

• you must be paying corporation tax – unincorporated businesses and partnerships will not be included

• it cannot apply to used assets – any asset has to be new and unused

• some long-life assets are excluded

• there are complex exclusions around leasing (see below for further information)

• there are restrictions on connected party transactions – so businesses that have subsidiaries could be impacted

• you cannot claim super-deduction on cars, though commercial vehicles and vans should be permitted.”

“In a common intra-group purchase scenario, a parent company might buy plant and machinery for a subsidiary, and the subsidiary company pays an arm’s-length rental for the plant and equipment back to the parent company. In this situation, the parent company can claim capital allowances but it cannot claim the super-deduction due to connected party rules. 

“The situation would be different if the parent company manufactured plant and sold it to a number of people, including the subsidiary, for it to use in its trade. In this example, this wouldn’t be an intra-group connected party restriction; the subsidiary company would be able to claim the super-deduction on its capital expenditure. The parent company wouldn’t be able to claim capital allowances because it doesn’t own the assets, and it would be treated as a normal sale for tax purposes.”

“While some incentives, including the Annual Investment Allowance, require businesses with common ownership to share a relief claim, this is not the case with the super-deduction. It doesn’t matter what the connection between the parties is, each company can claim, providing it is eligible and doesn’t fall within the exceptions mentioned. Both companies are unrestricted on their super-deduction claim, and there is no upper limit on how much can be claimed.”

“Following industry lobbying, the final legislation on the super-deduction has been changed to allow property investors to make claims, though this does come with some reservations. The new super-deduction and first-year allowance will apply to background plant and machinery in a building, so there are still items that could be excluded.

“If a property investment company builds a property and lets it out to a non-connected third party, both companies can claim the new super-deduction allowances on their own expenditure. However, the investment company will only be able to claim on background plants and the tenant will be able to claim on expenditure it incurs in fitting out the property for its own use.

“Landlord items that don’t qualify for super-deductions would still qualify for capital allowances [see further information on capital allowances here] at the existing rates. It might be possible to utilise contributions between landlord and tenant to increase the amount of expenditure that the landlord could claim super-deductions on.”

“There are complex exclusions surrounding leasing. The definition of ‘leasing’ in this context is drawn very widely, and includes the term ‘letting of assets on hire’. 

“For example, take a company which operates a plant hire business – it maintains the machines and retains the title of ownership of the plant throughout. A client can hire the plant on short or longer terms as needed, but has no right of use of the asset and will never own it. In this situation, while the plant would qualify for capital allowances, it won’t qualify for super-deductions, as the ‘letting of assets on hire’ exclusion would apply. Where an asset is hired out with an operator, this arrangement is currently excluded from super-deductions claims.”

“There are three scenarios to consider.

• If you’re disposing of an asset in the period of the super-deduction, ie before [the end of] March 2023, any disposal proceeds are uplifted by the 130% super-deduction rate.

• If you dispose of an asset after April 2023 and before the company’s year end, then you need to use a hybrid disposal rate.

• For a disposal during an accounting period starting on or after 1 April 2023, the actual disposal proceeds are used.”

“There are a lot of capital allowances rates out there, from 150% on land remediation down to 3% on structures and buildings allowances. 

“With the corporation tax rate increasing to 25% from April 2023, claiming super-deduction might not give you the most advantageous tax results. Claiming 130% super-deduction at 19% compared to normal capital allowances at 18% at a 25% corporation tax rate results in very similar savings, with the main difference being that with a super-deduction you can take all of this relief now. 

“It is also worth noting that if the super-deduction resulted in tax losses, those losses could be carried back against profits of the past three years or carried forward against future profits.”

For information about the ‘super-deduction’ and other tax initiatives, visit GOV.UK.