One thing mentioned in the budget yesterday was a new 130% first-year capital allowance for qualifying plant and machinery assets and a 50% first-year allowance for qualifying special rate assets From 1 April 2021 until 31 March 2023. But let's take a closer look at the eye catching scheme
Why is the Chancellor doing this?
The main reason this is being introduced is because levels of investment by businesses have 'chilled' as a result of the pandemic, the Treasury said.
'This super-deduction will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now', it said.
The Treasury thinks super deductions will ensure Britain's capital allowances system, which is the process whereby businesses pay lower tax when they buy certain assets, will be among the most competitive in the world. Rishi wants companies to unleash the cash businesses have tied up in their balance sheets, and get the economy moving.
Who will benefit?
It looks set to help engineering, manufacturing, & construction companies the most, given these businesses have high capital expenditure by their very nature. In turn this will certainly help the North of England where a number of manufacturing & engineering companies are based. For less cash rich businesses it's unlikely to have a significant impact however it is not yet known what plant and machinery will qualify under the new scheme.
What effect will it have?
Dubbed as the new 'splash out to help out' scheme Sunak should succeed in getting cash-rich companies to invest more rapidly than they might otherwise have done.
Mark Minihane, EY UK & Ireland advanced manufacturing and mobility tax leader, said: 'Manufacturing businesses will also welcome the super-deduction incentive for investing in new equipment, and will be eager for more detail on what exactly this will cover. However, the two-year period for the relief is a little disappointing.'