Super Deduction: How It Worked and What Replaced It

The super-deduction was a temporary UK corporation tax relief that let companies deduct 130% of the cost of new plant and machinery from their taxable profits in the year of purchase. It ran from 1 April 2021 to 31 March 2023 and has expired.¹ From April 2023 onward, the government replaced it with full expensing, a permanent 100% first-year deduction for main rate plant and machinery that is still available.² If you’re researching the super-deduction today, it’s either because you bought qualifying assets during the window and need to handle a disposal, or because you’re trying to work out what to claim now that it’s gone.

How the Relief Worked

Announced in the March 2021 Budget and enacted through the Finance Act 2021, the super-deduction created two enhanced first-year allowances for companies investing in new plant and machinery:¹

A 130% first-year allowance on main rate assets. Spend £100,000 on qualifying equipment and deduct £130,000 from taxable profits.
A 50% first-year allowance on special rate assets, covering items like integral building features and long-life assets that would normally receive a slower write-down.

The UK corporation tax rate during the window was 19%. That produced a real cash saving of roughly 25p for every £1 spent on main rate assets.³ Instead of spreading deductions across many years through writing-down allowances, companies took the entire tax benefit in year one.

Who Could Claim and What Qualified

Only companies within the charge to corporation tax were eligible. Sole traders, individual freelancers, and most partnerships were excluded because they pay income tax, not corporation tax.³ A partnership with a corporate partner could claim only for that partner’s share of the expenditure.

The spend itself had to be on plant and machinery: computer systems, manufacturing equipment, office furniture, solar panels, and similar business tools. Every item had to be new and unused. Second-hand or refurbished kit was explicitly excluded.⁴ Several other categories were shut out:

Cars, as defined in the Capital Allowances Act 2001, regardless of whether they were new.⁵
Equipment bought for the purpose of leasing to others, with a narrow exception for background plant in a leased building such as a lift in an office block.⁵
Purchases from a connected company or person.

The split between main rate and special rate assets decided whether a purchase got 130% or 50%. Special rate assets are the ones defined by the Capital Allowances Act 2001: integral features of a building (electrical, water, heating, air conditioning, ventilation, lifts, escalators), long-life assets with an expected useful life of at least 25 years, and thermal insulation added to an existing building.⁶ Everything else in the plant and machinery category was main rate.

Working Out the Tax Saving

The maths was straightforward. A company that bought a new CNC milling machine for £200,000 during the window could claim a £260,000 deduction (£200,000 × 130%). At 19% corporation tax, that was a £49,400 tax saving in year one, compared with £6,840 under the normal 18% writing-down allowance.³

For a special rate asset, say a £150,000 air-conditioning system, the 50% first-year allowance produced a £75,000 deduction and a £14,250 tax saving. The remaining £75,000 went into the special rate pool and was written down at 6% per year.¹

Selling or Scrapping a Super-Deduction Asset

This is the part that still matters. If your company claimed the super-deduction on an asset and later disposes of it, that triggers a balancing charge, an amount added back to taxable profits to claw back part of the original relief. The rule exists to stop companies claiming 130% and then flipping the asset for cash.⁷

If the disposal happened during an accounting period ending before 1 April 2023, the proceeds were multiplied by 1.3 to mirror the original enhanced deduction. After that date, the factor is adjusted to reflect the proportion of the accounting period falling before the deadline.⁸ The calculation matters: an error in the factor either inflates or understates the charge.

What Replaced It

Full expensing took over on 1 April 2023 as a permanent successor. Companies deduct 100% of the cost of qualifying main rate plant and machinery in the year of purchase. Special rate assets still receive the 50% first-year allowance, unchanged from the super-deduction era.²

The eligibility rules carried over almost identically: only companies can claim, assets must be new and unused, and the same exclusions apply to cars, leased assets, and connected-party purchases. What changed is the tax rate around the relief. From April 2023, the main corporation tax rate rose to 25%, with a 19% small profits rate for companies earning under £50,000.⁹ At 25%, a 100% deduction delivers a tax saving of 25p per £1 invested, the same headline result the government advertised for the super-deduction at 19%, reached through a different combination of deduction percentage and tax rate.

Because full expensing has no scheduled end date, the time pressure that drove many super-deduction purchases is gone. A company weighing a piece of equipment today no longer has to race a closing window to secure the enhanced relief.

1
Legislation.gov.uk. Finance Act 2021 – Capital Allowances: Super-Deductions Etc
2
GOV.UK. Claim Capital Allowances: Full Expensing and 50% First-Year Allowance
3
GOV.UK. Super-Deduction
4
GOV.UK. Check if You Can Claim Super-Deduction or Special Rate First Year Allowances
5
GOV.UK. First Year Allowance (FYA): Super-Deduction and Special Rate (SR) Allowance
6
Legislation.gov.uk. Capital Allowances Act 2001
7
Legislation.gov.uk. Finance Act 2021 – Section 12: Disposal of Assets Where Super-Deduction Made
8
GOV.UK. Disposing of a Super-Deduction or Special Rate First Year Allowance Asset
9
GOV.UK. Corporation Tax Rates and Allowances