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Super Deduction ’21 – Everything You Need to Know

"This is the biggest two year business tax cut in modern British history" - Rishi Sunak, Chancellor of the Exchequer

What is the 2021 UK Super Deduction?

Following the 2021 budget, Rishi Sunak and his number crunching tory chums are prepared to give significant tax deductions to companies that invest in new technologies. As described by the government, available to read in full here, the super deduction allows companies to cut their tax bill by up to 25p for every £1 they invest.

Available from April 2021 until the end of March 2023, the super deduction itself allows for 130% to be deducted from the initial investment and computed from its taxable profits. The change in allowance makes the UK’s capital allowance the most competitive in the world with the UK jumping up from 30th to 1st in the OECD (Organisation for Economic Cooperation & Development).

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Why is the 2021 UK Super Deduction Being Introduced?

The super deduction is a response to support businesses that have experienced a turbulent 12-months following the COVID-19 pandemic and is set to encourage swathes of investment. Cyclical in nature, the super deduction rewards businesses for investing, in turn leading to higher levels of productivity and more growth.

The UK has always been behind its global competitors when it comes to things like capital investment tax deductions. Following Brexit and the global pandemic this gap has only been amplified and encouraging businesses to invest by offering huge tax breaks is set to drive recovery, productivity and help businesses grow.

How Does the Super Tax Deduction Work?

For those without a master’s degree in finance, the super deduction might be quite a daunting format to try and decipher, but when you break it down into its most simple form it is easy to understand. Essentially you can deduct 130% of the qualifying company spend from your taxable profits.

For example, a £100,000 investment, let’s say an automated robot system, will allow £130,000 to be deducted. With business tax at 19%, it means you will make a tax saving of £24,700 on the initial investment.

Under the previous system (10% of the initial investment AIA and 18% WDAs) the tax saving would a mere £1,620. Just 6% of what you can save with this all-new super deduction.


What is Included in the Super Deduction?

The super deduction applies to a whole range of assets that can help your business to grow and become more productive. This might be a new fleet of lorries for a haulage company, it could be forklift trucks for factories or even new IT equipment. The caveat however, is that all of these products must be entirely new and previously unused.

Of course, from Bauromat’s stance we are going to be encouraging businesses to further consider robotic & automation solutions. Not only are they a proven asset to help grow productivity within manufacturing, but the more robots that are out there and working, the more competitive UK manufacturing becomes when compared with its global competition.

Why Should I use the Super Deduction Now?

Although it is just over a month old (launched on 1st April 2021 and announced the month previously during the Spring budget) the clock is already ticking on the super deduction. It is set to end at the end of the March 2023 giving manufacturers only 24-months (23 as you read this) to decide on the investments they want to make.

It is important to note however, that the treasury phrase the time scale as ‘expenditure incurred in’, this means that even if the order has been placed, if full payment has not been made within the 2-year time frame it is unlikely that the super deduction can be applied.

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