End of the Super Deduction?

The super-deduction is due to come to an end from 31 March 2023 and any plant and machinery  expenditure incurred after this date will not qualify for the super-deduction. 

As we approach the end of the super-deduction period, it is important for companies to consider what expenditure will qualify for relief and the level of tax relief that will be received. 

The timing of expenditure will be significant in determining if the super-deduction is available. The general rule is that expenditure is incurred on the date on which the obligation to pay becomes unconditional. This may be set by the contract to purchase the plant and machinery, however, where there is no contract a person buying goods may legally be required to pay for them on delivery.

The increased corporation tax rate which is effective from 1 April 2023needs to be considered when establishing the overall tax relief for capital expenditure.

It is worth noting there are a few exceptions to the rules, such as when payment for goods is more than four months after the obligation to pay becomes unconditional, or for goods that are purchased under hire purchase agreements or stage payment contracts. 

For companies that do not prepare their accounts to March each year, the company’s accounting period will straddle 1 April 2023. In this circumstance, the 30% additional super-deduction rate is tapered on a time apportioned basis for days falling after 1 April 2023. 

For example, a company with an accounting year ended 30 September 2023 will be able to obtain super-deduction relief on qualifying assets at the rate of 115%. However, this only applies for expenditure incurred during the period 1 October 2022 to 31 March 2023. Any expenditure incurred on or after 1 April 2023 will not qualify for the super-deduction. 

The good news following the end of the super-deduction is that Annual Investment Allowance (AIA), which gives full tax relief for expenditure incurred by a business on plant and machinery, is set to continue at a permanent level of £1 million from 1 April 2023. 

There have been calls from the Confederation of British Industry (CBI) on the UK Treasury to extend the super-deduction allowance or introduce a similar scheme, with the aim of unlocking business investment and improving cashflow at a time of rising costs. 

With the Spring Budget 2023 due on 15 March, the focus will be on whether Chancellor Jeremy Hunt is set to unveil further tax breaks for business investment. In lieu of any changes, businesses will need to review the timing and level of capital investment in order to maximise the availability of capital allowances.