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Super deduction

Super-deduction for plant and machinery – From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. Investing companies will also benefit from a 50% first-year allowance for qualifying special rate (including long life) assets.

Commenting on the introduction of super deductions on businesses’ capital investment, Portia Pierrel, Director, PwC said:

“The ‘super deduction’ represents a new increased temporary tax relief for companies who invest on certain qualifying capital assets from 1 April 2021, which is anticipated to stimulate £25bn in business investment in the UK. It is expected to benefit capital intensive businesses, such as manufacturers and utilities companies in particular. 

“This measure will allow a temporary first-year allowance; including a super-deduction of 130% on most new plant and machinery investments - which would have ordinarily qualified for 18% relief - and a first year allowance of 50% on most new plant and machinery investments which would have ordinarily qualified for 6% relief. This will provide not only an accelerated timing benefit but additional tax relief on expenditure incurred.  For example, we anticipate a manufacturer incurring £10m of expenditure on a new factory to receive an additional £1m of cash tax saving over the two-year period the measure is in place.   

“These measures will be welcomed by businesses and will encourage an immediate acceleration of investment, instead of holding off.  However, care will need to be taken in relation to certain assets, such as vehicles and leased plant and machinery, which may be subject to restrictions.”  

Freeports - enhanced capital allowances incentives

Capital allowances incentives in respect of plant and machinery as well as structures and buildings have been proposed in today’s Budget. This is in the context of the consultation on freeport policy released on 10 February 2020 that forms part of the government’s “levelling up” agenda. Subsequently, an intention to introduce tax reliefs for freeport investment was stated in the government’s consultation response on 7 October 2020.

As part of the Chancellor’s announcement, eight different locations across the UK were stated as locations of the new freeports, as follows:

  • East Midlands Airport
  • Felixstowe and Harwich
  • Humber
  • Liverpool City Region
  • Plymouth
  • Solent
  • Thames
  • Teesside

The Budget 2021 proposes enhanced capital allowances, which are among a range of reliefs being offered for investments in freeports.

In respect of plant and machinery, an enhanced capital allowance of 100% will be available for companies investing in new or unused assets. The enhanced allowance will be available for both main and special rate pool assets. Companies will be able to benefit from a reduction in taxable profits, and therefore their corporation tax liability, by the full cost of the qualifying investment in the year it is made, and will remain available until 30 September 2026.

It should be noted that the intention is for allowances to be clawed back where, within five years of acquisition, the asset is used outside of a freeport zone. This should be borne in mind when considering intentions for the use of the plant and machinery.

In respect of Structures and Buildings Allowance (“SBA”), the Budget contains a provision for an enhanced 10% rate for the construction or renovation of non-residential structures and buildings, where these assets are brought into use on or before 30 September 2026. The current rate for such assets (and as will be the rate outside of freeport zones) is 3% nationwide, and is relieved over 33 ¹/³ years. Effectively, therefore, investment in qualifying assets in freeport zones will be fully relieved within a decade, hence accelerating the rate of corporation tax relief. Where structures and buildings are partially located outside the freeport sites, a “just and reasonable” apportionment of qualifying expenditure for SBA will be accepted.

These measures will be welcome for businesses who are intending to take substantial investment in qualifying assets. The measures are also complemented by full Stamp Duty Land Tax relief on the purchase of land and buildings in freeport sites that are located in England and Northern Ireland (all of the freeport sites proposed are located in England).

Please speak to your PwC Capital Allowance specialist for further details.