The Chancellor has announced a new 130% first-year capital allowance for qualifying plant and machinery assets; and a 50% first-year allowance for qualifying special rate assets.
From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim:
• a 130% super-deduction capital allowance on qualifying plant and machinery investments
• a 50% first-year allowance for qualifying special rate assets
The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.
The Treasury states the "Super Deductions" policy is the largest of its type in modern British history and will promote growth. The aim of the policy is to incentivise businesses to invest in new machinery and equipment. These businesses can cut 25p from their tax bill for every eligible £1 they invest.
But despite the focus placed on it by the chancellor, on Wednesday evening it emerged the Office for Budget Responsibility (OBR) is already warning this policy may not spur much new growth.
The "Super Deductions" policy is time-limited to two years from 1st April prompting the OBR to pass judgement that "it largely brings forward planned investment from future years".
The OBR have applied a "very high" uncertainty rating to the overall costing, meaning it could cost more as well as less.
The OBR also comments that "not only are the rates generous, but they are not limited by value", meaning that super deductions could create super winners.
The government has offered unprecedented support for businesses during Covid. Even so, pandemic-related economic shocks and the accompanying uncertainty have chilled business investment. This super-deduction will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now .
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