Super-deduction to encourage investment in the construction sector

The 2021 Budget was more positive than most people expected with the Chancellor deciding that now is not the time to start collecting extra taxes to repay the massive amount of borrowing this past year. Instead, it focused on helping businesses emerge out of the current uncertainties surrounding COVID and Brexit, looking at ways to increase their investment in assets to meet the explosion of demand when restrictions are eventually lifted.

One of the incentives offered in the Budget which will benefit construction companies that are considering investing is the ‘super-deduction’. The super-deduction offers a special 130% capital allowance rate for companies that purchase plant and machinery, including commercial vehicles, between 1 April 2021 and 31 March 2023.

Under the current rules, all businesses can claim the Annual Investment Allowance (AIA) on most plant and machinery up to a total cost of £1m in the year of purchase until 31 December 2021. The super-deduction rate will be available for companies instead of the AIA or where the £1m limit is reached. Another benefit to the super-deduction, is that it will not affect a company’s R&D claim, meaning a company can benefit from both schemes simultaneously.

While the 130% capital allowances rate is very tempting, there can be a downside. Unfortunately, Sole-traders and Partnerships do not qualify and those who successfully claim, and sell the asset on/before 31 March 2023, will see the proceeds of sale inflated by 130%. Sales of these assets between 1 April 2023 and 31 March 2024 will also count as taxable income for the company and will be subject to a tapered uplift in value.

The super-deduction only applies to the purchase of all new plant and machinery, meaning used or secondhand plant and machinery does not qualify. There are other exclusions, so it is wise to discuss your options with your accountant if an investment decision is depending on it.

The super-deduction is a good headline grabbing initiative, and no doubt it will benefit many companies in the next couple of years however, we would encourage any construction businesses considering investing to start planning now.

If you would like further information on the super-deduction, and the amounts that can be claimed, please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.