Asset Finance For Capital Allowances: What Assets Qualify For Super Deduction?

COVID-19, lockdowns and subsequent global instability have led to British businesses slowing down in terms of investing in growth. For the UK treasury, this is a problem and one that they’ve tried to rectify by introducing super-deduction rules that lifts the UK’s net present value of plant and machinery allowances from 30th in the Organisation for Economic Co-operation and Development (OECD) to 1st.

Considering weak business investment since 2008 has been identified as a leading cause of the economic slowdown, the move could not have come quickly enough and many are already calling for an extension of the measures past their current deadline. 

If you’re considering buying any plant equipment or machinery, you need to understand super deduction and take any relevant action before the end of March 2023 to maximise its value. As asset finance experts, we can help you invest in the assets or machinery you need and take advantage of the super deduction savings.

Contact our team today to discuss asset finance. We’ll discuss all available lenders and advise based on your specific business requirements. We can also help you understand the super deduction scheme and explain how you may maximise your business’s investment in any assets by accessing one of the most generous government tax relief schemes ever devised. 

Before you do that, you may want to understand the scheme in full. We’ve created this guide to give you a full overview of super deduction both as it stands currently and if it is extended in future. You’ll also need to know about disposing of any assets you accessed the relief for once the super deduction scheme ends.

What is super-deduction? 

For businesses looking to invest in their growth, the British Government has created an extremely attractive tax incentive scheme known as the ‘super-deduction’ allowance. This scheme aims to cut as much as 25p of tax for every £1 your business invests in any main rate qualifying machinery or equipment for two years from April 1st 2021 (meaning March 31st 2023 is the current deadline, though this may be extended). 

During this period, any investments in (main pool) plant equipment and machinery should qualify for a 130% capital allowance deduction, provided the assets meet the government’s criteria (click to jump to qualifying assets). The chancellor also introduced an ‘SR Allowance’ which is a 50% first-year allowance for qualifying special rate (including long life) assets.

Crucially, this deadline is not about when you can claim, but is about the purchasing window for your machinery or equipment. Provided you buy your assets before the end of March 2023, you can claim the allowance. Note that super-deduction only refers to the 130% figure, the 50% Standard Rate (SR) allowance is a separate issue that shares the same deadline. 

What can you buy for your business under super deduction? 

You may already have equipment or plant machinery which is eligible for super deduction, provided you purchased it during the dates we’ve outlined above. 

Like many tax schemes, understanding exactly what does and does not qualify for super deduction is vital. The government has provided a list of qualifying items, with the caveat that it is not exhaustive and all purchases must be main rate to qualify for 130%. 

• Solar panels
• Computer equipment and servers
• Tractors, lorries, vans
• Ladders, drills, cranes
• Office chairs and desks
• Electric vehicle charge points
• Refrigeration units
• Compressors
• Foundry equipment

Super deduction is only applicable to assets bought new. You can’t claim for any plant or machinery that you buy second hand or have on lease. 

There’s no limit on expenditure for claiming super deductions. Provided you claim for eligible equipment and machinery within the expected deadline, you’ll be able to claim as much as you have spent. 

What is the SR allowance?

The SR allowance is a 50% allowance for any qualifying special rate assets. Like a super deduction, it is calculated based on your total spend on qualifying assets (in this case, special rate). For example, if you were to spend £2m on integral features of a building, which don’t qualify for Super Deduction, you could get an SR allowance of 50%, or £1m, to be used against corporation tax profits. 

What is not eligible for super deduction

There are some clear rules around what is NOT allowed in the super deduction allowance. Used and second-hand assets are excluded, as well as any plant/equipment where the contract was taken out prior to 3rd March 2021, even if you actually paid for it after 1st April. Other exclusions include:

• No company cars/cars
• Buildings or structures (excluding integral features)
• No eligibility for spending on plant and machinery for leasing. 

Assets within a ring fence trade are excluded because they already have a 100% allowance. Any plant and machinery equipment bought as a hire purchase need additional conditions to qualify for the super deduction and rate relief. Capital allowances can only be claimed for payments you make under the HP agreement when the asset is brought into use and possession transfers to your business. 

Unlike hire purchases, asset finance carries different requirements. A finance lease allows for no first-year allowances, but provided ownership is in your business name before the deadline is over you’ll be able to claim capital allowance. 

Understanding capital allowances for super deduction

The ‘25p for every £1’ statement you read online can be misleading. The allowance is a tax relief system that essentially drives down the cost of your corporation tax based on your assets purchased in the qualifying period. When calculating your earnings to work out your taxable profits, you’ll use the super-deduction and/or 50% First Year Allowance (FYA) to reduce your tax liability. 

Super deduction is ultimately just another form of capital allowance, which has previously been limited to Writing Down Allowances (WDAs) and Structures and Buildings Allowances (SBA). 

The allowance represents a significant saving and makes it important for businesses that are considering investing in any qualifying equipment to make sure they buy them before the deadline ends. 

To visualise this saving, imagine your business purchasing £500,000 of qualifying assets. When computing your taxable profits, you can then deduct £650,000 (130%). Deducting said profit will then reduce your overall corporation tax bill. 

Selling assets claimed under super deduction

There’s a chance that businesses that buy assets under a capital allowance may have to dispose of them. If you do, you'll need to be aware of how your tax situation affects the disposal. 

Any disposal of main pool items will see you taxed on the proceeds of the sale, rather than being able to take the proceeds to the relevant capital allowances pool as you would with a new allowance. On disposing of any special rate pool items you’ll have to pay a 50% balancing charge on the proceeds of the sale. The other 50% comes from the special rate pool.

If the date of disposal is after the end of super deduction (1st April 2023), the 25% corporation tax rate will apply to the balancing charge. If you’re disposing of assets claimed with super deduction before 1 April 2023 , the disposal value to account is 1.3 times the actual disposal value.

This all sounds complex so consider this example: if you were to buy £500,000 in assets in 2022, you’d then claim a £650,000 super deduction. The tax relief of 19% is £123,500. If you then sell that asset in 2024 for £200,000, the balancing charge of £200,000 at 25% would mean tax at £50,000 - a tax saving of £73,500. 

Disposal is a complicated issue, the best advice we can offer is that you should track every asset you claim for carefully and plan ahead for a sale/disposal. 

How to claim super deduction

You must be within the charge to corporation tax to be eligible to claim super deduction allowances. The expenditure incurred must apply between 1st April 2021 and 31st March 2023. The allowances only apply to contracts entered into after the 3rd of March 2021. 

For businesses, the scheme incentivises investments in your growth – buying the equipment or machinery that will help you reach your goals with the knowledge you’re essentially purchasing them whilst saving your business money. If you’re worried about affording the up-front cost of the machinery/equipment, you can also explore asset finance to help you secure them. 

Provided the asset finance sees ownership of the asset transfer to your business when the agreement ends, the scheme will still apply – even though you won’t technically own the asset before the super-deduction deadline. 

Here at Rangewell, we can not only help you arrange the appropriate asset finance deal for your needs, we can also help guide you through the super-deduction process and advise you on the right pathway.

Get funding to purchase assets before super deduction ends

Don’t let the opportunity for big savings in your business pass you by just because you don’t have the liquid cash to invest in assets. Choose Rangewell and we’ll arrange the ideal asset finance package for you and your business, working with you to understand exactly what you need, which lender is best for you and what finance option works for your financial projections. 

We’re on your side, giving you a helping hand in the tricky lender’s market and ensuring you secure the best deal. Act quickly before the end of super deduction so you don’t miss out on the available relief while it is here.