{"id":220010,"date":"2022-05-18T11:51:00","date_gmt":"2022-05-18T10:51:00","guid":{"rendered":"https:\/\/www.pearlaccountants.com\/?p=218003"},"modified":"2023-05-22T15:01:37","modified_gmt":"2023-05-22T15:01:37","slug":"new-130-super-deduction-scheme","status":"publish","type":"post","link":"https:\/\/www.pearlaccountants.com\/blogs\/new-130-super-deduction-scheme\/","title":{"rendered":"How Does the New 130% Super-Deduction Scheme Work?"},"content":{"rendered":"\n<p>As part of the Chancellor\u2019s <a href=\"https:\/\/www.pearlaccountants.com\/blogs\/budget-2021-businesses-need-to-know\/\">Budget 2021 announcement<\/a>, a new \u201csuper-deduction\u201d capital allowance scheme was announced. This means that companies will be able to claim 130% capital allowances on qualifying plant and machinery investments purchased between 1 April 2021 and 31 March 2023.<\/p>\n\n\n\n<p>The purpose of this super-deduction scheme is to encourage investment into the UK after lockdowns <a href=\"https:\/\/www.independent.co.uk\/news\/business\/uk-economy-latest-gdp-recession-ons-b1801277.html\">decimated the economy<\/a>.<\/p>\n\n\n\n<p>This scheme is available to all businesses \u2014 big or small.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.pearlaccountants.com\/blogs\/new-130-super-deduction-scheme\/#What_are_capital_allowances\" title=\"What are capital allowances?\">What are capital allowances?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.pearlaccountants.com\/blogs\/new-130-super-deduction-scheme\/#How_to_calculate_the_super_deduction\" title=\"How to calculate the super deduction\">How to calculate the super deduction<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.pearlaccountants.com\/blogs\/new-130-super-deduction-scheme\/#What_is_considered_%E2%80%9CPlant_and_Machinery%E2%80%9D\" title=\"What is considered \u201cPlant and Machinery\u201d?\">What is considered \u201cPlant and Machinery\u201d?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.pearlaccountants.com\/blogs\/new-130-super-deduction-scheme\/#Further_Information\" title=\"Further Information\">Further Information<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_capital_allowances\"><\/span>What are capital allowances?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Capital Allowances are an incentive specific to the UK where companies can write off certain capital investments against their final tax bill.<\/p>\n\n\n\n<p>Basic Accounting Principles require that a company write off a capital expenditure such as a new computer, motor vehicle, property, etc., over a certain number of years. This is called <em>Capital Depreciation<\/em>.<\/p>\n\n\n\n<p>According to Basic Accounting Rules, you can\u2019t buy, say, a new mahogany desk for your office at \u00a350,000 (<em>I want one!<\/em>) and chop it off of your profits in one fell swoop.<\/p>\n\n\n\n<p>There are <a href=\"https:\/\/www.freeagent.com\/us\/glossary\/depreciation\/\">two ways to calculate depreciation<\/a>, but for this example, let\u2019s use the simpler \u201cstraight-line depreciation\u201d which divides the total cost of the asset by the number of years the asset will be of use in your business.<\/p>\n\n\n\n<p>Now, we all know mahogany desks can last a lifetime, but let\u2019s say this particular one will only be useful to your business for 10 years.<\/p>\n\n\n\n<p>So, to calculate its annual depreciation, you divide \u00a350,000 by 10 and get \u00a35,000.<\/p>\n\n\n\n<p>Therefore, for the next ten years, you will be allowed to deduct \u00a35,000 from your profits until the value of the mahogany desk has been paid off.<\/p>\n\n\n\n<p>That\u2019s what you do in your <a href=\"https:\/\/www.pearlaccountants.com\/services\/bookkeeping\/\"><em>books<\/em><\/a>. But when it comes time to submit your <a href=\"https:\/\/www.pearlaccountants.com\/services\/company-accounts\/\">tax return to HMRC<\/a>, a company that pays corporate tax is allowed to make use of <em>Capital Allowances.<\/em><\/p>\n\n\n\n<p>Under the <a href=\"https:\/\/www.gov.uk\/capital-allowances\/annual-investment-allowance\">Annual Investment Allowance (AIA)<\/a> scheme, a company is allowed to claim <em>100%<\/em> of that asset\u2019s cost against its <em>tax bill<\/em>, up to a maximum of \u00a31 million. That means that, even though your books say you can only chop \u00a35,000 off of your profits, under the AIA system, you are allowed to take off the full \u00a350,000 against your <em>tax bill<\/em>.<\/p>\n\n\n\n<p>Hello, new mahogany desk!<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_calculate_the_super_deduction\"><\/span>How to calculate the super deduction<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Using the new super-deduction scheme, you will not only be able to write off \u00a350,000 for your new mahogany desk, you will actually be able to write off <em>130%<\/em> of the value of the purchase.<\/p>\n\n\n\n<p>Let\u2019s see how that translates in terms of your final tax bill:<\/p>\n\n\n\n<p>Let\u2019s imagine a company with \u00a3100,000 profit on its books and \u00a310,000 depreciation deduction for that year. Under the Capital Allowance scheme, they would need to \u201cadd back\u201d the depreciation:<\/p>\n\n\n\n<p>So, \u00a3100,000 + \u00a310,000 = \u00a3110,000.<\/p>\n\n\n\n<p>Then they would need to deduct the mahogany desk for tax purposes:<\/p>\n\n\n\n<p>\u00a3110,000 &#8211; \u00a350,000 = \u00a360,000.<\/p>\n\n\n\n<p>Corporate Tax of 19% on \u00a360,000 = \u00a311,400.<\/p>\n\n\n\n<p>Under the super-deduction scheme, however, they would be able to claim 130% of the mahogany desk, or \u00a365,000.<\/p>\n\n\n\n<p>So, \u00a3110,000 &#8211; <strong><em>\u00a365,000<\/em><\/strong> = \u00a345,000.<\/p>\n\n\n\n<p>Corporate Tax of 19% on \u00a345,000 = \u00a38,550.<\/p>\n\n\n\n<p>That\u2019s a total tax saving of \u00a32,850!<\/p>\n\n\n\n<p>Of course, the savings will be more prominent for bigger businesses.<\/p>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_considered_%E2%80%9CPlant_and_Machinery%E2%80%9D\"><\/span>What is considered \u201cPlant and Machinery\u201d?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Because the definition of \u201cPlant and Machinery\u201d purchases is enshrined in Case Law, its interpretation is something that can be contested in the courts. <\/p>\n\n\n\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-1 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<p>This has led <a href=\"https:\/\/www.telegraph.co.uk\/business\/2021\/03\/05\/fraud-fears-sunaks-tax-super-deduction\/\">some<\/a> to believe that the scheme might lead to increased levels of fraud.<\/p>\n\n\n\n<p>But, for those of us not interested in splitting hairs, <a href=\"https:\/\/assets.publishing.service.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/967202\/Super_deduction_factsheet.pdf\">HMRC<\/a> says that \u201cMost tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.\u201d<\/p>\n<\/div>\n\n\n\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\">\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"540\" height=\"350\" src=\"https:\/\/www.pearlaccountants.com\/wp-content\/uploads\/2021\/04\/What-is-considered-Plant-and-Machinery-1.png\" alt=\"What is considered \u201cPlant and Machinery\u201d?\" class=\"wp-image-219447\" srcset=\"https:\/\/www.pearlaccountants.com\/wp-content\/uploads\/2021\/04\/What-is-considered-Plant-and-Machinery-1.png 540w, https:\/\/www.pearlaccountants.com\/wp-content\/uploads\/2021\/04\/What-is-considered-Plant-and-Machinery-1-300x194.png 300w\" sizes=\"(max-width: 540px) 100vw, 540px\" \/><\/figure>\n<\/div>\n<\/div>\n\n\n\n<p>These can include:<\/p>\n\n\n\n<ul>\n<li>Computers, tablets, laptops<\/li>\n\n\n\n<li>Business mobile phones<\/li>\n\n\n\n<li>Servers<\/li>\n\n\n\n<li>Ladders<\/li>\n\n\n\n<li>Various tradesman\u2019s machinery, such as drills, electric screwdrivers, power saws, etc.<\/li>\n\n\n\n<li>Carpenters\u2019 tools<\/li>\n\n\n\n<li>Office chairs and desks (<em>Hello, mahogany desk!<\/em>)<\/li>\n\n\n\n<li>Electric vehicle charge points<\/li>\n\n\n\n<li>Office furniture<\/li>\n\n\n\n<li>Office bookshelves<\/li>\n\n\n\n<li>Office TVs<\/li>\n\n\n\n<li>Digital display panels<\/li>\n\n\n\n<li>Air conditioning units<\/li>\n\n\n\n<li>And so forth<\/li>\n<\/ul>\n\n\n\n<div style=\"height:50px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Further_Information\"><\/span>Further Information<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For a full breakdown of all the calculations, allowances and types of assets that can be deducted as part of the super-deduction scheme, as well as information on other capital allowance incentives, please see <a href=\"https:\/\/assets.publishing.service.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/967202\/Super_deduction_factsheet.pdf\">this PDF document<\/a>.<\/p>\n\n\n\n<p>And, of course, we are always available to answer our clients\u2019 questions. If you need more info, please <a href=\"https:\/\/www.pearlaccountants.com\/contact\/\">contact us here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As part of the Chancellor\u2019s Budget 2021 announcement, a new \u201csuper-deduction\u201d capital allowance scheme was announced. This means that companies will be able to claim 130% capital allowances on qualifying plant and machinery investments purchased between 1 April 2021 and 31 March 2023. The purpose of this super-deduction scheme is to encourage investment into the <a href=\"https:\/\/www.pearlaccountants.com\/blogs\/new-130-super-deduction-scheme\/\" class=\"more-link\">&#8230;<span class=\"screen-reader-text\">  How Does the New 130% Super-Deduction Scheme Work?<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":219445,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2195,2198,4352,2211],"tags":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The New 130% Super-Deduction Scheme: How Does Work?<\/title>\n<meta name=\"description\" content=\"Companies paying corporate taxes can now claim up to 130% in capital allowances for plant and machinery purchases made from 1 April 2021 to 31 March 2023. 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