A guide to the capital allowances super deduction in the UK

We consider what the capital allowances super-deduction is, who qualifies for it, how to claim and the associated caps and claim amounts.

What is the capital allowances super deduction?

Capital allowances are UK tax relief for investment in business equipment (called “plant and machinery” in tax jargon). The super-deduction gives a bigger and faster capital allowances tax break than has ever been given by capital allowances before.

The super-deduction was introduced in the spring 2021 Budget. It is a temporary measure to boost the UK economy by encouraging investment in business equipment during the two years from 1 April 2021 to 31 March 2023, where the contract to buy the equipment was also agreed on or after the Budget day of 3 March 2021.

Can a landlord claim the super-deduction?

Initially, the super-deduction small print prevented landlords from claiming the super-deduction. But the Government listened to calls from business to change this and changed the rules so landlords can now claim the super-deduction for “background plant and machinery for a building”. This means that normal plant or machinery, that would be found in many types of building and without which a building could not generally be used, now qualifies for the super-deduction. The cost of assets in the common parts of multi-let properties also benefit from the super-deduction.

How do losses impact the super deduction?

Surprisingly, even companies with losses can potentially benefit from the super-deduction. Whilst there may be no immediate benefit because a loss-making company will not have a corporation tax bill, claiming the super-deduction can increase the amount of tax losses available or even turn an accounting profit into a loss for tax purposes. There are complicated rules about how a company’s tax losses may be used. But they can potentially be offset against the company’s profits of another accounting year (potentially after April 2023 when the corporation tax rate is expected to increase to 25%, giving a tax saving of almost 33p in the pound). Or for companies that are part of a group, losses can normally be transferred to other group companies to be relieved against their profits of the same year or later years.

Is there a cap on the super deduction?

There is no limit to the amount of spend that can benefit from the 130% super-deduction. This is different from the super-deduction’s nearest capital allowances equivalent, the 100% “annual investment allowance” (AIA), which has a maximum cap of £1,000,000 of qualifying spend each year and will reduce to just £200,000 from 1 April 2023.