A brand new 'super-deduction scheme' was introduced a couple of years ago which was an extension of the Annual Investment Allowance (AIA). Businesses investing in qualifying assets from 1 April 2021 until 31 March 2023 would benefit from up to 130% first-year capital allowance.

The new scheme allowed businesses to deduct the full value of qualifying assets from profits before tax. You would receive the full tax relief from the year assets are purchased rather than over multiple years. This would subsequently reduce the tax liability. It would also provide much faster tax relief for any qualifying investments up to the value of £1m and allow more businesses to invest and grow.

Why did the government introduce a super-deduction?
• Since the Covid-19 pandemic, existing low levels of business investment had fallen, with a
reduction of 11.6% between Q3 2019 and Q3 2020.
• Much of the UK’s productivity gap with competitors was attributable to our historically low
levels of business investment compared to our peers. Weak business investment had
played a significant role in the slowdown of productivity growth since 2008.
• Making capital allowances more generous works to stimulate business investment. As a
result, these measures can promote economic growth and counter business cycles.
• The super-deduction gives companies a strong incentive to make additional
investments, and to bring planned investments forward.

How do businesses qualify for the scheme?

The AIA extension applies to qualifying expenses on any vehicles, equipment, machines and any other assets required for the business from 1 April 2021. This would depend on a business's chargeable period.

An Example of the super-deduction in practice:
• A company incurring £1m of qualifying expenditure decides to claim the super-deduction.
• Spending £1m on qualifying investments will mean the company can deduct £1.3m
(130% of the initial investment) in computing its taxable profits.
• Deducting £1.3m from taxable profits will save the company up to 19% of that – or
£247,000 – on its corporation tax bill.

You could be using this scheme when purchasing new equipment for your workshop or MOT bay, but hurry, the deadline of 31st March 2023 for claims is fast approaching!