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Introduction of temporary enhanced capital allowances

Super Deductions Allowance and Special Rate Allowance

– 1 April 2021 to 31 March 2023

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On 3 March 2021 the Government published draft legislation introducing the new temporary “super deductions allowance” and “special rate allowance” in respect of qualifying capital expenditure incurred during the period 1 April 2021 to 31 March 2023. The legislation is currently in draft and we anticipated that the bill shall receive Royal Asset around June or July 2021.

The main headline points regarding these two new allowances are noted below. Detailed consideration of any proposed transaction is advisable if the company will be seeking to claim relief under these new provisions.

  • Available to companies only
  • The claimant company must be a UK resident trading entity subject UK corporation tax
  • Not available to property/investment businesses
  • The asset on which the relief is being claimed must be used in the UK trading activity
  • The level of qualifying expenditure is un-capped
  • Relief of 130% x qualifying cost for “main pool” assets
  • Relief of 50% x qualifying cost for “special rate pool” assets
  • Expenditure must be incurred during the period 1 April 2021 and 31 March 2023
  • Contracts entered into prior to 3 March 2021 will not qualify
  • Assets under hire purchase – may qualify if the contract allows the asset to become owned by the company on performance of the contract, and the qualifying asset is brought into use before the end of the accounting period
  • Rate of super deduction will be apportioned if the accounting period straddles 1 April 2023
  • The current Annual Investment allowance continues to be available (£1m until 31 December 2021, then reducing to £200k per annum), in addition to the new temporary deductions now introduced

Disposal of Assets on which Super Deduction Claimed (130%)

  • Disposals in accounting periods ending on or before 31 March 2023 – taxed on 130% of proceeds
  • Disposal in accounting period starting on or after 1 April 2023 – taxed on 100% of proceeds
  • Disposal in period straddling 1 April 2023 will give rise to a hybrid rate x proceed

Disposal of Assets on which Special Rate Allowance Claimed (50%)

  • 50% of the disposal proceed will be taxed regardless as to the date of disposal

Super deduction (130% relief) – qualifying assets

  • New assets only
  • Broadly those which would qualify as “main pool” assets under the existing Capital Allowance regime
  • Includes such items as plant and machinery, computer hardware, commercial vehicles (not cars) and fixtures and fittings

Special Rate Allowance (relief 50%) – qualifying assets

  • New assets only
  • Broadly those which would qualify as “special rate pool” assets under the existing Capital Allowance regime
  • Includes such items as air conditioning units, electrical systems, thermal insulation
  • 50% of cost relieved at 100%, balancing 50% of cost relieved at the writing down allowance rate (currently 6% per annum)

Excluded Assets

  • Used and second-hand assets
  • Assets acquired by way of a contract entered into prior to 3 March 2021
  • Transactions which are contrived, abnormal or lacking genuine commercial purpose
  • Connected party transactions
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