The Chancellor of the Exchequer recently announced a “super-deduction” for expenditure on qualifying plant and machinery assets. The measure is designed to boost investment by providing an allowance of 130% on new plant and machinery investments that would normally qualify for 18% main rate writing down allowance. As the legislation is currently drafted, leasing and plant hire is excluded. Here, Beverly Wood, a partner with Scotland-based law firm Morton Fraser, offers a legal perspective on the measures.

The recent Budget put measures in place to unlock business investment in the UK with the introduction of temporary increased tax relief on certain capital investments.

Companies that are subject to corporation tax can claim a “super-deduction” allowance of 130% on qualifying new plant and machinery expenditure incurred from 1 April 2021 until 31 March 2023.

The legislation will amend Part 2 of the Capital Allowances Act 2001 (CAA) to make provision for the super-deduction allowance and also a 50% first-year allowance for special rate assets, potentially allowing companies to cut their tax bill by up to 25p for every £1 they invest.

These temporary measures are designed to encourage businesses to act now and fast-track planned investments, rather than further stagnating business investment, which reduced by 11.6% between Q3 2019 and Q3 2020.[1]

While the tax relief may provide an incentive to make certain investments, there are notable limitations: second-hand assets are excluded, the general exclusions under section 46 of the CAA still apply and expenditure incurred in relation to contracts executed before 3 March 2021 is out with scope. In addition plant and machinery investments financed via hire purchase or similar contracts are subject to additional requirements.

The government estimates that the increased tax relief will have a significant impact on 2.8 million companies that incur qualifying expenditure on plant and machinery; however, the proposals have been criticised in relation to how accessible the tax benefit will ultimately be for the SME market who predominately rely on hire purchase as a key method in financing such assets.

There is currently some uncertainty as to whether a business would qualify for the super-deduction if, as is the case in an HP arrangement, the finance company incurs the expenditure in acquiring the goods.  Arguably such arrangements could qualify, if the lease payments are considered to be payments to acquire the goods and there is an expectation that legal ownership will pass on the exercise of an option.

The temporary increase to the annual investment allowance (AIA) has also been extended to continue at a limit of £1,000,000 for expenditure on plant and machinery incurred in the period from 1 January to 31 December 2021. This increased level of relief, according to the government, is said to impact an estimated 31,500 businesses.

The government is hopeful that these increased tax reliefs will promote economic growth while helping businesses invest in their productivity and long term growth; however, the accessibility of the relief for small and medium-sized companies remains to be seen.

[1]Budget 2021 – Super-Deduction‘ (, 2021) accessed 16 March 2021.

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