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What is the Super Deduction Tax Incentive?

7 June 2022

During the Covid-19 pandemic the government introduced the super-deduction tax incentive to stimulate small business investment. But what is it?

Super-deduction Capital Allowance

All purchases of new plant and machinery (including commercial vehicles) qualify for super-deduction capital allowance. This allows you to offset 130% of the asset value against your taxable profit in that first year. However, some categories of assets do not qualify for, including cars and certain fixtures in buildings e.g., heating, air conditioning systems, and electrical systems.

Example purchase:

  • Let’s say the value of the asset is £100,000
  • You can offset 130% (£130,000) against your taxable profit
  • At the current Corporation Tax rate (19%), this equates to a tax saving of £24,700
  • Sum: £100,000 x 130% x 19% = £24,700

This is a real incentive for businesses to commit to new investment. There is no limit on purchases, and it applies to HP, loans and cash transactions.

Annual Investment Allowance (AIA)

Also included in the Spring Budget 2022 was a £1m AIA limit that businesses can utilise for new and used assets. This limit was previously only available until 31 December 2021, however it is now running until March 2023.

Example purchase:

The same principle applies as the example above, but with these asset purchases 100% can be offset against taxable profit, which on £100,000 equates to a tax saving of £19,000.

  • Sum: £100,000 x 100% x 19% = £19,000

If you have any questions regarding super-deduction or AIA, contact our specialist tax team in Bury.

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