Super-deduction and special rate first year allowance

Produced by Tolley
  • (Updated for Budget 2021)

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Super-deduction and special rate first year allowance
  • Hire purchase assets and temporary enhanced allowances
  • Timing of contract and bringing the asset into use
  • Requirements of the hire purchase contract
  • Apportionment of expenditure for super-deduction
  • Disposal of asset when a super-deduction has been claimed
  • Disposal in a chargeable period that ends before 1 April 2023
  • Disposal in a chargeable period that straddles 1 April 2023
  • Disposal of asset when special rate allowance has been claimed
  • Anti-avoidance rules

Super-deduction and special rate first year allowance

The super-deduction and special rate first year allowance (SR allowance) temporarily increase reliefs for companies on qualifying expenditure on plant or machinery from 1 April 2021 to 31 March 2023. They were introduced at Budget 2021 and are included in the Finance Act 2021 changes. These are valuable reliefs where the date of expenditure is important for the asset to qualify so businesses will need to maintain records of dates of acquisition especially for larger projects that span 1 April 2021 and 1 April 2023.

The additional reliefs are split into two types:

  1. a super-deduction of 130% allowances on new plant or machinery that is not special rate expenditure, ie it would ordinarily qualify for the 18% main rate writing down allowance ― see the Capital allowances computations guidance note, and

  2. a first year allowance of 50% on new plant or machinery that qualifies as special rate expenditure, ie it would ordinarily qualify for the 6% rate writing down allowance ― see the Special rate pool and long life assets guidance note. This is called the SR allowance in the legislation

FA 2021, s 9

Where assets are disposed of, on which either of these reliefs were claimed, there will be a balancing charge, which is detailed below, therefore separate records of the qualifying assets will need to be maintained in order to be able to calculate the balancing charge.

The allowances are available for companies only and not for self-employed businesses or partnerships. There are also the following restrictions for both types of relief:

  1. the expenditure has to be incurred on or after 1 April 2021 but before 1 April 2023. For these reliefs, where a contract has been entered into before 3 March 2021 (the day of Budget 2021) the expenditure is treated as being incurred on the date the contract was entered into and the exceptions for unconditional contracts do not apply

  2. the expenditure is not on plant

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