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The Spring Budget announced the introduction of the enhanced rate of capital allowances, known as the Super Deduction and Special Rate Deduction, which entitles companies spending money on Plant and Machinery after 1 April 2021 an enhanced tax deduction. However, the first draft of the legislation excluded companies operating a property rental business from this valuable relief.
There has now been an amendment to Clause 9 of the Finance Bill 2021 which confirms that the leasing exclusion will not apply where the lease is in respect of background plant or machinery for a building.
Background plant and machinery is defined as any plant and machinery leased with the land, which would be reasonably expected to be installed in the building and whose sole purpose is to make the building usable. Such items eligible to the super deduction would be fire safety systems, automatic doors, public address systems and intruder alarms.
Other restrictions remain in place, a summary of Super-Deductions and other temporary First-Year Allowances is set out below.
In order to stimulate and encourage investment following the COVID-19 pandemic, the Budget introduced two new first year allowances for companies – a super-deduction of 130% for main pool plant and machinery expenditure, and a first year allowance of 50% for special rate plant and machinery expenditure which includes long life assets. The enhanced relief is only available to companies, and is not available to partnerships or individuals.
It has effect for expenditure incurred from 1 April 2021 up to and including 31 March 2023, but specifically excludes contracts entered into prior to 3 March 2021, regardless of when the expenditure under those contracts is incurred. The qualifying expenditure is subject to a number of exclusions, including a general exclusion on cars, assets leased out and second hand assets.
The super-deduction is a 130% first-year allowance for qualifying plant and machinery expenditure which would ordinarily be relieved at the main rate writing down allowance at 18%.
The 50% special rate first-year allowance provides relief for qualifying expenditure that would ordinarily be relieved at the special rate writing down allowance of 6% per annum, such as integral features in a building, including lifts and air conditioning systems.
However, as the government had already agreed to an extension of the Annual Investment Allowance (AIA), giving 100% allowances until 1 January 2022, most landlords will derive the most benefit from the AIA.
If you would like to know more about the Super Deduction and how it may affect your business, please contact Paul Twydell, corporate tax partner, or your normal Simmons Gainsford contact.