Until March 2023, the UK government is offering 130% capital tax allowance deduction on qualifying first-year plant and machinery purchases. What does this mean in practice?

In a nutshell, under the super-deduction, for every pound a company invests in upgrading their machinery, their taxes are cut by up to 25p by the UK government. It’s for qualifying first-year plant and machinery purchases only, but there is no upper spend limit. This incentive has been running since April 2021.

Why is the government offering this incentive?

It’s been a combination of the UK performing poorly internationally when it comes to investing in plant and machinery, Brexit meaning the government has actually do something about it before it’s too late, plus the country’s businesses are still recovering from coronavirus so investment was falling because of this too.

Making the UK more competitive

The UK government is offering this incentive as it’s trying to drive the UK to be more internationally competitive. We’re currently 30th in the Organization for Economic Co-operation and Development (OECD) for value of our plant and machinery allowances, and this aims to lift us into first place.

The government hopes to recover the productivity gap by incentivising businesses to invest in their equipment, stimulating economic growth. The government’s superincentive factsheet says that “The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward”.

Example calculation

To put this into context, if you were to spend £1m on qualifying automation machinery, it means under the super-deduction scheme you could deduct £1.3m (130% of the initial investment) in your taxable profits. Deducting £1.3m from taxable profits will save the company up to 19% of that (£247,000) on your corporation tax bill if you decide to claim on the scheme. Eligibility criteria can be found here.

Automation – never been a better time to invest

Funding providers are calling this allowance the most attractive tax incentive for business investment that has ever been offered by a British government. Want to know more about the automation machinery you could purchase through the scheme? Contact us today for a free consultation.