Super deduction for investment branded 'biggest business tax cut in modern British history'

The Chancellor has announced a “super deduction” for companies when they undertake investment in their business, reducing their tax bill by 130 per cent of the cost.
Rishi Sunak believes that the tax relief measure will spur investment. Picture: Dan Kitwood/Getty ImagesRishi Sunak believes that the tax relief measure will spur investment. Picture: Dan Kitwood/Getty Images
Rishi Sunak believes that the tax relief measure will spur investment. Picture: Dan Kitwood/Getty Images

Rishi Sunak believes that the tax relief measure will spur investment, particularly in green technologies.

Firms that invest in their businesses over the next two years will be able to reduce their tax bills by 130 per cent of the cost. The Chancellor described the move as “the biggest business tax cut in modern British history”, though there are likely to be caveats attached.

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It also comes as larger businesses face the prospect of a hike in corporation tax to 25 per cent from April 2023.

Joe Marshall, chief executive of the National Centre for Universities and Business (NCUB), said: “The super deduction will encourage and help businesses to invest, including in research and innovation.

“This is critical to help businesses build back better and lay the foundations for an innovation-led economy. The super deduction, coupled with other measures to stimulate R&D investment such as exploring changes to pension investment rules and tax credits systems, represent important steps towards developing a more resilient economy.

“Today’s announcements help us move towards greater prosperity, as well as tackle the seismic challenges of climate change and the fourth industrial revolution.”

Brendan Sharkey, head of construction and real estate at MHA MacIntyre Hudson, said the super deduction scheme, which applies across the UK, would provide a “real shot in the arm” for businesses looking to invest.

“Those investing will be able to reduce tax that is paid and presumably where tax losses are sustained they will be carried back. This could prove to be the stimulus for offsite manufacture to increase volumes of houses built as well as modern methods of construction.”

Mike Cherry, national chairman of the Federation of Small Businesses (FSB), also gave a positive response to the tax relief measure.

He said: “The new super deduction option sounds very promising, and we look forward to further detail on the investments it will cover – it should be made accessible to the smallest firms.

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“Confirmation of pre-announced measures like Help To Grow on management and digital skills, and Restart cash grants, are welcome, and it’s key that the very smallest firms benefit from them.

“That said, while the furlough extension is much-needed, small employers are still struggling due to high national insurance contributions and the removal of the job retention bonus. The government should look again at these areas.

“Fundamentally, there was very little in the statement on job creation and reducing the cost of employment.”

According to the Treasury, from 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim: a 130 per cent super deduction capital allowance on qualifying plant and machinery investments; a 50 per cent first-year allowance for qualifying special rate assets.

The super deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, “ensuring the UK capital allowances regime is amongst the world’s most competitive”, officials added.

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