New temporary tax breaks on eligible fixed asset investments from April 1, 2021

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The government has said the new measure will temporarily introduce increased relief for plant and machinery expenses.

For eligible expenses incurred from April 1, 2021 to March 31, 2023 inclusive, companies can claim during the investment period:

  • a super-deduction providing rebates of 130% on most new investments in plant and machinery which normally give entitlement to depreciation allowances at the main rate of 18%;
  • a 50% first-year allowance on most new investments in plant and machinery which normally qualify for special depreciation allowances of 6%.

The measure also temporarily changes the rules regarding expenses incurred for plant and machinery used in part in a closing trade in the oil and gas sector.

Legislation will be introduced in the 2021 finance bill amending part 2 CAA 2001 to introduce the super-deduction, a reinforced temporary allowance of 130% the first year for prime rate assets and a 50% allowance the first year for special rate assets.

Certain expenses will be excluded. The general exclusions in section 46 will apply. In addition, there will be exclusions for second-hand and second-hand goods and expenses on contracts entered into before March 3, 2021, even if the expenses are incurred after April 1, 2021.

Assets used entirely in a closing trade will be excluded from the super-deduction, as they already benefit from a 100% deduction, assets used partly in a closing trade temporarily qualifying for a 100% deduction the first. year.

Equipment and machinery expenses incurred under a hire-purchase or similar contract must meet additional conditions to be eligible for the super-deduction and special rate relief.

The rate of the super-deduction must be distributed if an accounting period overlaps April 1, 2023. The rate must be distributed on the basis of days prior to April 1, 2023 over the total number of days in the accounting period.

Changes will be made to Chapter 5 to introduce new disposal rules that will apply to assets that have been claimed for these allowances. Disposal receipts should be treated as balancing charges (taxable profits), instead of being pooled. The calculation includes rules that treat only part of the assignment receipt as a balancing charge, if part of the initial expense is claimed by these temporary allowances, or part is claimed by other depreciation.

In addition, for assets that have been claimed as super-deduction, the disposal value for capital deduction purposes should take the disposal receipt and apply a factor of 1.3, except where the disposals occur during the period. accounting periods overlapping April 1, 2023, resulting in a factor less than 1.3. This rule does not apply to the 50% first year allowance for special rate expenses.

Commenting on the introduction of super deductions on corporate capital investments, Portia Pierrel, Director of PwC, said: “The super deduction represents further increased temporary tax relief for companies that invest in certain eligible fixed assets from April 1. 2021, and is expected to boost £ 25bn in UK business investment. It should benefit capital intensive businesses, such as manufacturers and utility companies in particular.

“This measure will allow a temporary first year allowance; including a 130% super-deduction on most new investments in plant and machinery that would normally have qualified for 18% relief, and a 50% first-year deduction on most new investments in machinery. installations and machinery that would normally have qualified for a 6% relief. This will not only provide an expedited schedule benefit, but also additional tax relief on expenses incurred. For example, we predict that a manufacturer will incur £ 10million in spending on a new factory to gain an additional £ 1million in tax savings over the two-year period that the measure is in place. .

www.gov.uk
www.pwc.co.uk

WHAT INDUSTRY SUPPLIERS ARE SAYING …
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TM machine sales

“The new super deduction made it the best time to invest in new machinery. The new incentive offers customers who want to purchase a new Striebig vertical panel significant tax savings. This, added to the added benefit of favorable currency ranges and low finance rates, makes woodworking machines more affordable than ever.

“We are already seeing an increase in machine sales inquiries since the budget earlier this month and expect sales to increase in the next 12 months following the announcement. This is great news for machine builders and the woodworking industry as a whole.

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SCM UK Group

“SCM is very pleased with the government’s decision to encourage capital investment to modernize UK production.

“All manufacturers should take care to keep their equipment up to date to improve their competitiveness and achieve higher levels of safety and well-being at work. This regardless of budgetary stimuli.

“The government’s incentive adds an additional incentive to do it immediately. Beyond the simple substitution of obsolete equipment, the opportunity must be seized to aim to revisit the production process, increase flexibility and customization, offer an exceptional finish, improve durability and the adoption of Industry 4.0 solutions. to improve performance supported by readily available data.

“Only a handful of premium equipment suppliers like SCM can offer all of this, and the added benefit of a temporary 130% tax break on qualifying capital investments eliminates the logical justifications for waiting longer for the to do. It’s temporary: enjoy it while it’s there!

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Palamatic

“The government’s super deduction on business investment will help carpentry companies invest in capital goods that will result in productivity and process improvements and increased profitability. “

“Vacuum tube lifting has for many years offered a solution for safe lifting and handling in the woodworking industry. Companies quickly realize after purchasing their first unit that the productivity improvements within this process provide additional financial benefits they had not been able to consider before and regularly purchase from additional units.

“An operator can load, unload, rotate, inspect, reload and finally palletize panels, doors and sheets of material. Applications we regularly supply equipment for include loading and unloading vertical panel saws, panel saws, dimension saws, CNC flat edge banders, laminators, painting lines and tilting tables. .

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Michael Weinig (United Kingdom)

“The new super deduction means that for every book our customers spend, their tax bill can be reduced by up to 25%. This will make the value of the highest UK capital cost allowance in the OECD – taking us from 30th to first – and make us extremely competitive internationally.

“This offers enormous potential for both furniture makers and machine builders. In fact, we are already seeing an increase in inquiries from people wanting to take advantage of the new allowance and invest in higher tech machines – it really is a double bonus to pay less tax and to get hold of the latest equipment. This is a really positive sign and Weinig UK expects to see industry growth over the next 12 months. “

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AAG

“The UK government’s announcement of its super-deduction initiative will prove to be both a timely and much-needed boost to future business growth in the wake of the devastation caused by the Covid-19 pandemic.

“The initiative, which allows eligible companies to benefit from significant tax reductions on investments in capital goods, will also be reinforced by the already convincing incentives linked to owning an AXYZ machine and the tangible contribution made. to the growth and profitability of the business. AAG is already delivering a series of customer support enhancements as part of a comprehensive and cost-effective purchasing package and these are expected to be complemented by important new developments to be announced shortly to mark the group’s 30th anniversary.


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