Deductions at the source

The Chancellor’s Budget Day saw the announcement of a new capital allowance that will allow companies to reduce their taxable profits by 130% of the cost of new equipment. This has attracted a lot of interest but also raised a number of questions.

Very simply, the Super Deduction is a new temporary allowance that gives a greater and faster level of tax relief on qualifying expenditure incurred between April 1, 2021 and March 31, 2023. For most expenditure on plant and machinery, Will Silsby, a technical officer with the Association of Taxation Technicians, says that it works by treating the company as if it had spent an extra 30% on the item and then allowing tax relief on the whole of that uplifted amount in calculating the tax bill for the year of expenditure. ‘So,’ he says, ‘with a 19% tax rate, the Super Deduction is designed to reduce a company’s tax bill by some 24.7% of the actual cost of the qualifying items.’