The Government has said that this new measure will temporarily introduce increased reliefs for expenditure on plant and machinery.
For qualifying expenditures incurred from 1st April 2021 up to and including 31st March 2023, companies can claim in the period of investment:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances;
- a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
The measure also temporarily amends the rules covering expenditure incurred on plant and machinery used partly in a ring fence trade in the oil and gas sector.
Legislation will be introduced in Finance Bill 2021 to amend Part 2 CAA 2001 to bring in the super-deduction, an enhanced temporary 130% first-year allowance for main rate assets, and a 50% first-year allowance for special rate assets.
Certain expenditures will be excluded. The general exclusions at s46 will apply. In addition, there will be exclusions for used and second-hand assets and expenditures on contracts entered into prior to 3rd March 2021 even if expenditures are incurred after 1st April 2021.
Assets used wholly within a ring fence trade will be excluded from the super-deduction, as they already have a 100% allowance, with assets used partly in a ring fence trade temporarily qualifying for a 100% first-year allowance.
Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify for the super-deduction and special rate relief.
The rate of the super-deduction will require apportioning if an accounting period straddles 1st April 2023. The rate should be apportioned based on days falling prior to 1st April 2023 over the total days in the accounting period.
Amendments will be made to Chapter 5 to bring in new disposal rules that will apply to assets that have been claimed to these allowances. Disposal receipts should be treated as balancing charges (taxable profits), instead of being taken to pools. The calculation includes rules which treat only part of the disposal receipt as a balancing charge, if part of the original expenditure is claimed by these temporary allowances, or part is claimed by other capital allowances.
Further, for assets that have been claimed under the super-deduction, the disposal value for capital allowance purposes should take the disposal receipt and apply a factor of 1.3, except where disposals occur in accounting periods straddling 1st April 2023, resulting in a factor lower than 1.3. This rule does not apply to the 50% first-year allowance for special rate expenditures.
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 in certain qualifying capital assets from 1st April 2021, and 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.”
WHAT THE INDUSTRY SUPPLIERS ARE SAYING ...
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TM Machinery Sales
“The new super deduction has made it the best time to invest in new machinery. The new incentive offers customers looking to purchase a new Striebig vertical panel saw significant tax savings. This, plus the added benefit of favourable exchange ranges and low finance rates, is making woodworking machinery more affordable than ever.
“We’re already seeing increased machinery sales enquires since the budget earlier this month and we’re expecting to see a rise in sales over the next 12 months off the back of the announcement. This is great news for machinery manufacturers and the woodworking sector as a whole.”
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SCM Group UK
“SCM are very pleased with the Government’s decision to spur capital asset investment to modernise UK production.
“All manufacturers should look at keeping their equipment up to date to improve their competitiveness and achieve superior levels of safety and workplace welfare. This regardless of fiscal stimuli.
“The Government incentive adds the extra encouragement to do so immediately. Looking beyond the mere substitution of obsolete equipment, the opportunity should be taken to aim towards revisiting the production process, increasing flexibility and customisation, delivering outstanding finish, improving sustainability and the adoption of Industry 4.0 solutions to drive performance supported by readily available data.
“Only a handful of superior equipment suppliers like SCM can offer all of this, and the added benefit of a 130% temporary tax relief on qualifying capital asset investments eliminates logical justifications to wait any longer to do so. It’s temporary: catch the benefit while it is here!”
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Palamatic
“The super deduction on business investment by the Government will assist woodworking companies to invest in capital equipment that will result in productivity and process improvements and offer increased profitability.”
“Vacuum Tube lifting has provided a solution to safe lifting and handling in the woodworking sector for many years. Companies soon realise after purchasing their first unit that the productivity improvements within that process offer additional financial benefits, they hadn’t previously been able to factor in and regularly proceed to purchase more units.
“One operator can load, unload, rotate, inspect, re-load and finally palletise panels, doors and sheets of material. Applications we regularly provide equipment for include loading and unloading vertical panel saws, beam saws, dimension saws, flat bed CNC stations edgebanders, laminators, paint lines, and tilt tables”
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Michael Weinig (UK)
“The new super deduction means for every pound our customers spend, their tax bill can be cut by up to 25%. This will make the UK capital allowance value the highest in the OECD - raising us from 30th to first – and making us extremely competitive internationally.
“This offers huge potential for both furniture manufacturers and machinery manufactures alike. In fact, we’re already experiencing an uplift in enquires from people keen to benefit from the new allowance and invest in higher technology machinery – it is really a double bonus of paying less tax and getting your hands on the latest equipment. This is a really positive sign and Weinig UK expects to see industry growth in the next 12 months.”
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AAG
“The announcement by the UK government of its super-deduction initiative will prove both a timely and much needed boost to future business growth in the wake of the devastation caused by the Covid-19 pandemic.
“The initiative, which enables qualifying companies to benefit from significant tax cuts on capital equipment investments, will also be augmented by the already compelling inducements enshrined in ownership of an AXYZ machine and the tangible contribution made to business growth and profitability. AAG already provides a raft of customer support enhancements as part of a comprehensive and cost-effective purchasing package and these are due to be further supplemented by important new developments to be announced shortly to mark the group’s 30th Anniversary.”
