Super deduction: a financial marvel?

The Chancellor's budget day announcement of a new style of capital allowance, which will allow companies to reduce their taxable profits by 130% of the cost of new equipment, attracted a lot of interest. However, it has also raised a number of questions in relation to how it works and, importantly, which businesses can take advantage of it.

Very simply, the super deduction is a temporary allowance that gives a greater and faster level of tax relief on qualifying expenditure incurred in the 2-year period between 1 April 2021 and 31 March 2023. For most expenditure on plant and machinery, it works by treating the company as if it had spent an extra 30% on the item and then allows tax relief on the whole of that uplifted amount in calculating the tax bill for the year of expenditure. So, 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 item(s).