The UK Government recently announced new capital allowances reliefs including a temporary 130 percent super-deduction for expenditure on new plant and machinery. This measure is designed to promote productivity enhancing capital investments by companies. It is important businesses understand and take advantage of these generous new reliefs while they are available.

What is the super-deduction?

Designed to stimulate new UK investment, companies within the charge to corporation tax can claim a:

  • 130 percent first year allowance on most new plant and machinery that ordinarily qualify for 18 percent main pool annual relief, including processing equipment, production machinery computer systems and commercial vehicles (relief for which normally takes circa 15 years).
  • 50 percent first year allowance on most new special rate assets that ordinarily qualify for 6 percent annual relief, covering background plant to buildings such as lighting and electrics, and long-life assets lasting 25 years or more (relief for which normally takes circa 25 years).

Further key points:

  • The super-deduction is only available for expenditure under contracts entered into from 3 March 2021
  • The expenditure must be incurred between 1 April 2021 and 31 March 2023
  • There is no upper limit to the level of expenditure that attracts this enhanced relief
  • Excludes plant and machinery for leasing (including landlord fixtures within rented property)
  • Excludes cars

How can KPMG help?

KPMG – Fixed Asset Tax Team

KPMG‘s UK Fixed Asset Tax Services team comprises over 30 tax advisors, property surveyors, accounting professionals and ex-HMRC inspectors who work across a wide range of real estate and infrastructure projects to help ensure clients identify and maximise the commercial value of relevant tax reliefs.

The team works proactively with clients to help them stay ahead of regulatory changes, making tax an enabler for growth rather than a burden.

For more information please contact:

KPMG Fixed Asset Team

Immediate considerations

  • Assess current investment plans to understand what cashflow benefit companies could receive. Equally, consider bringing forward any planned investments to benefit from this 2 year super-deduction window.
  • Model the tax benefit of the super-deduction alongside the group’s wider tax profile, including the impact of loss carry-forwards, loss carry-backs, the higher corporation tax rate from 1 April 2023 and other reliefs available (including R&D reliefs on software).
  • Understand and manage the risks relevant to planned expenditure, to ensure that any forecast super-deduction benefits are robust in advance of committing to expenditure or submission of claims.
  • Entitlement reviews – assess the nature of the contractual arrangements you have on acquiring new assets or the use of those assets to ensure compliance with the super-deduction rules.

Key risk areas to address

  • Contract commitment dates – Super-deductions are not available for expenditure incurred under contracts entered into before 3 March 2021, so understanding procurement processes is vital. However, even where large capital projects have already commenced, dependent on the method of procurement it is possible certain sub-contracts or later phases fall within the rules.
  • Expenditure payment terms – Super-deductions are only available on expenditure incurred between 1 April 2021 and 31 March 2023. Plans to accelerate procurement terms to benefit from this window will require consideration of the anti-avoidance rules which prevent relief for contrived arrangements.
  • Assessing asset lives – The 130 percent super-deduction is not available for plant with a life of 25 years or more, which would instead qualify for the accelerated 50 percent special rate deduction (with the balance receiving 6 percent annual allowance).
  • Capturing qualifying expenditure – Companies should ensure that super-deduction claims are maximised by including all relevant allowable associated costs of installation, including building alterations and associated fees. Equally, thought should be given to how capable financial systems are of assessing all of the above and creating robust claims that can withstand any challenge from HMRC.