Sunak's new Super-Deduction – now is the time for retail investment?

A significant measure with the potential to benefit the retail industry was announced by the Chancellor last week as part of the Spring Budget. This will take the form of a new 'super-deduction', available from April for a limited 2-year period.

The clear aim behind the new super-deduction is to incentivise business investment. It will allow companies to offset against tax the full cost of new qualifying equipment over the next 2 years (for example in factories or warehouses) plus an additional 30%.

In simple terms, retailers able to make use of the new super-deduction will be able to reduce their tax bill by up to 25p for every £1 they invest in qualifying assets. This provides a clear incentive for businesses to make investments now (before 31 March 2023) to access the most favourable tax treatment.

Given the potential for material tax savings (see below), many retailers may want to consider bringing forward any applicable short/medium term scheduled and/or proposed investments into the qualifying period.

What was announced

For expenditure incurred from 1 April 2021 – 31 March 2023, companies can claim 130% capital allowances on qualifying plant and machinery investments.

Capital allowances let taxpayers write off the cost of certain capital assets against taxable income. Businesses deduct capital allowances when computing their taxable profits. One of the main types of capital allowances are "writing down allowances" for plant & machinery. The new 130% super-deduction will allow investing companies to lower their corporation tax bills.

There is no exhaustive list of plant and machinery assets. Most tangible capital assets used for the purposes of a business should qualify for some form of capital allowances. The kinds of assets which may qualify include solar panels, computer equipment and servers, lorries, vans, office chairs and desks and refrigeration units.

By way of example of the new super-deduction in practice:

• a retailer incurring £1m of qualifying expenditure decides to claim the super-deduction
• the company can deduct £1.3m (130% of the initial investment) in computing its taxable profits
• deducting £1.3m from taxable profits will save the company up to 19% (£247,000) on its corporation tax bill.