The Super-deduction tax break will run for only two years, from 1 April 2021 to 31 March 2023, so construction companies considering investing should start planning now.
Construction companies investing in qualifying new plant and machinery assets will benefit from a 130% first-year capital allowance. Companies can cut their corporation tax bill by up to 25p for every £1 they invest, while also benefiting from a 50% first-year allowance for qualifying special rate assets – mainly integral plant and machinery.
Assets that may qualify include:
Furthermore, the Super-deduction will not affect a company’s R&D claim. In fact, companies can claim both. According to Vijay Chadda, R&D specialist: “While the Super-deduction mechanism bears some similarity to the R&D scheme, the two schemes apply to different cost types and have no effect on one another, meaning a company can benefit from both schemes simultaneously.”
Guy Richardson, real estate and construction partner says: “The Super-deduction is the government’s way of encouraging businesses to spend their way out of the economic hole COVID has left the country in. The government hope that by offering a big tax break on investment, businesses, some of which have built up large cash pots during the pandemic, will spend that cash leading to overall economic growth in the next couple of years. Then, they can tax that growth through the increased corporation tax rate due to kick in when the Super-deduction ends.”
However, Guy also warns: “The Super-deduction is only really of value for businesses that have cash to spend and have a business need or opportunity to spend on qualifying assets. You have to spend to save. Without any cash to spend, or something to spend it on, the Super-deduction is useless to a business. It is probably also fair to say that real estate and construction are perhaps not the sectors where large cash pots built up during the pandemic, so this may not be the most useful tax break for that industry. That is especially true for the SME end of the scale too. Indeed, when you factor in that the corporation tax rate is only increasing for larger businesses, with profits over £250k pa, you can start to see what scale of business the Super-deduction is perhaps aimed at.”
Only time will tell if the Super-deduction has been a success and had the desired effect of boosting investment and productivity. However, due to the limited life span, two years from April 2021, we would encourage any businesses considering investing to start planning now.
Help from the experts
For more information on the Super-deduction and Budget 2021, or if you would like to discuss any other topics affecting real estate and construction including R&D tax relief, please get in touch with our team, which includes R&D and VAT specialists.